Market commentary

Data from the Chicago Purchasing Managers seems to confirm job growth as employment was the biggest mover in this data series, rising to 65.6 from 59.8. This is a good sign for tomorrow’s jobs report, at least on the manufacturing side. The March report from the Chicago Purchasing Managers came in slightly lower from February’s report; however, it reflects strength in the U.S. manufacturing sector. The only bad news is the prices paid index rose to 83.4 from 81.2, telling us inflation is on the horizon, if not already here. More bad news from Europe as the financial crisis in Portugal deepens and Ireland said it may have to infuse additional capital four of its banks. The U.S. markets’ reaction to today’s news and data is minimal, with stock indices and bonds flat from the close on Wednesday.

Market commentary

Private-sector employment increased by 201,000 from February to March, according to the latest ADP National Employment Report released today, and February’s job growth was revised down to 208,000 from 217,000. The Mortgage Bankers Assn. told us mortgage applications fell 7.5% for the week ending March 25. Applications for purchases fell 1.7% while applications for refinance fell 10.1%. In addition to the above data, which the market has already absorbed, the U.S. Treasury will auction $29 billion of 7 year notes, which follows Wednesday’s mediocre 5 year note auction. The market reactions to this are a slight improvement in bond prices and a decent rally in the U.S. stock markets.

Market commentary

Despite weak economic data last week and higher oil prices, stocks rallied while Treasuries sold off. The Dow Jones traded at 12,236 Friday afternoon after closing the previous week at 11,858, while the 10-year Treasury sold off 17 basis points, trading from 3.27% to close 3.44% Friday afternoon. This morning we see the markets moving in the same directions as last week; stocks are improving and bonds are worsening. Investors in stocks seem quite bullish regardless of the headlines. The nuclear crisis in Japan appears to be worsening, oil prices remain elevated as the military action in Libya continues, and the sovereign debt problems in Europe are not going away anytime soon. Economic data is in abundance this week with the all important jobs report on Friday. In addition to the data, the U.S. Treasury will be auctioning over $100 billion of new debt this week in the form of 2 year, 5 year and 7 year notes. Mortgage prices are .1255 to .25% worse than the close on Friday.

Market commentary

The final revision to 4th quarter 2010 GDP told us the U.S. economy grew at a 3.1% annual pace. That is the good news; however, the lingering question for the 1st quarter of 2011 is if the increase is sustainable given the rise in gas prices and faltering consumer sentiment.

The news from Japan is not as optimistic as the nuclear reactor saga continues, and headlines from Europe, specifically Portugal, are equally dismal as it appears at this point the country is headed for a bailout.

Oil prices are maintaining levels north of $100/bbl as military activity in Libya continues with no real end goal in sight. Quagmire is the descriptor used in one article I read this morning.

Again to day we see the bond market weaker and stocks moving higher. The yield on the 10 year note has pushed back to 3.46% and mortgage pricing is worse by approximately .125%.

Market commentary

Orders for durable goods (products designed to last more than 3 years) in February fell 0.9% as transportation and defense orders were weaker than expected. Expectations were for durable goods orders to rise 1.2% for the month. Ex-transportation, durable goods

And the sovereign debt problems in Europe will not go away as Portugal has now moved one step closer to needing a bailout when the Portuguese parliament rejected the Prime Minister’s proposed austerity measures, aka, tax hikes and spending cuts.

Dallas Fed Bank President Richard Fisher reiterated his feeling yesterday that QE2 will end in June and no more stimulus would be enacted. Bloomberg quotes Fisher as saying that since QE2 was implemented, he has seen "extraordinary speculative activity" and "there is an enormous amount of liquidity sloshing around." Recall that two weeks ago Bill Gross of PIMCO reported PIMCO had sold most of its U.S. government bonds, and after the earthquake, Japan will be using its resources for rebuilding. The question remains, when the Fed, PIMCO and Japan stop buying U.S. debt who will, and at what interest rate?

The markets’ reaction to this news and data leaves me in a quandary. U.S. stock markets are moving higher while bond prices move lower---meaning higher interest rates. Given the poor economic data, sovereign debt uncertainty and the continued unrest in the Middle East one would expect just the opposite.

Mortgage prices as worse by approximately .125% from Wednesday’s close.

Market commentary

It’s ugly out there. This perfectly describes economic data and news headlines this morning. The Commerce Department reported new home sales in the U.S. fell 16.95 in February, the lowest pace of sales since 1963 when the collection of this data began.

Other headlines cover stories such as: the Libyan crisis is escalating; rising tensions in other Middle Eastern countries; claims that the Portuguese government may fail soon; and reports of Japan’s nuclear problem growing.

One would think all of this bad news would have stocks retreating and a resulting flight to safety bid in the U.S. Treasury market. Neither of these scenarios is playing out as U.S. stock markets are relatively flat as are bonds.

Market commentary

Another light day in terms of economic data and U.S. stock and bond markets are taking a breather after Monday’s volatility. With the lack of data the markets are focused on global events and news headlines, and these items are providing no surprises, yet.

Mortgage bonds are trading .125% to .25% worse in price from Monday’s close.

Market commentary

This week’s economic calendar is light with the stock and bond markets again focusing on headlines from Japan and the U.N. military action in Libya.

Perceived progress in resolving Japan’s nuclear crisis has lifted U.S. stock markets this morning with the DOW higher by nearly 200 points. This is spite of more bad news from the housing sector as the National Assn. of Realtors reported existing home sales fell 9.6% with the median price falling to a 9 year low.

In addition to the housing news the U.S. Treasury announced it will be selling its $136 billion of mortgage backed securities over the span of the next year. This news coupled with the rally in stocks has treasury and mortgage bond prices lower on the day, with mortgage prices approximately .50% worse from the close on Friday. The yield on the 10 year note has drifted back to 3.35%.

Market commentary

There are no official economic releases today. Japan, Libya and oil prices remain in the headlines and are the drivers of both stock and bond markets. The 10-year Treasury, after retracing some of the recent improvement from earlier in the week, has settled back at 3.25% for the time being. This is 25 bps in yield below where it closed two weeks ago.

And just when you thought we may get a break at the pump (meaning gasoline prices) the U.N. Security Council approved a resolution authorizing military action, to enforce a no-fly zone over Libya. Oil prices have spiked above $103/bbl this morning in New York trading.

The Senate passed the three-week continuing resolution to fund the government when the current resolution expires today. The bill will now go to the White House for the President’s signature. The resolution funds the government through April 8 and makes another $6 billion in cuts.

Mortgage prices are flat from Thursday’s close.

Market commentary

Consumer prices rose slightly more than expected in February with headline CPI increasing 0.5% month over month and 2.1% year over year. The biggest movers were the volatile food and energy components, so ex-food and energy, CPI rose 0.2% month over month and 2.1% year over year. While higher commodity prices and energy prices are filtering through to consumer prices, the Fed believes their impact will be “transitory.” I guess we will see.

Again today, the markets are focused on the unfolding events in Japan. Although the reaction today is the exact opposite of Wednesday. Wednesday we saw a flight to safety bid in treasuries as the yield on the 10 year note fell from 3.34% to as low as 3.14%. This morning the 10 year note yield has risen to 3.26% as we seek stock markets rebound. Mortgage prices are worse by .375% to .50%.

Market commentary

The headlines continue to focus on tragic events in Japan and the continued unrest in the Middle East, almost ignoring the U.S. economic data. Under normal circumstances the rise of 1.6% month over month in the Producer Price Index would have driven interest rates much higher. Excluding food and energy the core index rose 0.5% versus the expected 0.2%.

After closing well of the high prices Tuesday, U.S Treasuries are rallying again this morning as the flight to safety continues.

Market commentary

The Fed meets today and is scheduled to release their official statement at 2:15 p.m. ET. They are expected to make no changes to current policy, leaving the overnight rate unchanged and continuing the QE2 Treasury purchase program. Not that the Committee was wavering, but the events in Japan will likely give them more cover in leaving monetary policy accommodative.

The markets are now intensely focused on the possibilities of a nuclear disaster in Japan as $364 billion worth of wealth was lost from the Japanese stock market overnight. The U.S. stock markets opened broadly lower and treasuries were the recipients of a flight to quality bid.

Three hours into the U.S. trading day stock markets are finding support and some of the bid is exiting the bond market. Early this morning the yield on the 10 year note had fallen to 3.23% and is now trading at 3.29%. It is hard to know how events will play out in Japan and the Middle East so take advantage of the opportunity the market has given you today.

Market commentary

For the past few weeks the markets have focused on the unrest in the Middle East and North Africa, however, the global community is now focused on the disaster in Japan and the quickly unfolding events. As a result, the U.S. Treasury market is the recipient of a flight to quality bid with the yield on the 10 year note falling to 3.34%.

In addition to the above, we have a full economic calendar this week, beginning tomorrow with the FOMC meeting and the accompanying rate decision. Inflation data will come later in the week in the form of the Producer and Consumer Price Indices and Leading Indicators.

For today mortgage prices are improved by approximately .375% from the close on Friday.

Market commentary

Once again world events dwarfed U.S. economic data. Retail Sales in the U.S. rose 1.0% in February, as expected, however, the massive earthquake that hit Japan and events in the Middle East continue to grab headlines.

Stock markets and commodities sold of sharply after news of the Japanese earthquake, and so far the “Day of Rage” in Saudi Arabia has not materialized into anything of substance.

An initial flight to safety into the U.S. Treasury market has faded with the yield on the 10 year note rising from 3.36% to 3.395%. Mortgage prices are worse by .125% to .25%.

Market commentary

This morning’s report that Initial jobless claims rose from 371k to 397k for the week ending March 5, and the four-week moving average rose slightly to 392k had no effect on the markets. What did have an effect was Moody’s downgrade of Spain’s sovereign debt, and weaker than expected economic data from China. Couple these items with the continued unrest in Libya and the Middle East and you have a scenario where the markets have a variety of crises on which to focus.

Since the downgrade of Spanish debt and weaker than expected growth from Chine are the new kids on the block for today, this has become the focus. U.S. stock markets are in sell mode with the DOW lower by 180 points. Any potential flight to quality rally in U.S. Treasuries is muted with the yield on the 10 year note lower by a couple of basis points.

The good news is oil and energy prices are falling sharply on the perception that global economic growth is slowing.

We saw a nice rally in bonds on Wednesday on surprising demand at the 10 year note auction. We will see if this can be repeated today as the Treasury auctions $13 billion of 30 year bonds.

Market commentary

Limited economic data this morning; we were told by the Mortgage Bankers Association that mortgage applications rose 15.5% for the week ending March 4th, with purchase applications rising 12.5% while refinance applications rose 17.5%. I think it is clear to all of us in the mortgage space the recent drop interest rates holds sole responsibility for this increase.

The U.S. Treasury will auction $21 billion in 10-year notes today. Yesterday’s 3-year note auction fared better than recent auctions have, which is a positive sign that demand remains good despite the recent drop in Treasury yields.

Market commentary

No economic data this morning so the markets are focused on what else, events in Libya and the Middle East. After spiking above $107/bbl Monday morning in New York trading oil has fallen to $105/bbl which apparently is enough good news to rally the U.S. stock markets. The DOW is higher by 150 points at the time of the writing while bond prices are lower. The yield on the 10 year note has pushed up to 3.54%, as the markets wait for the Treasury auction of $32 billion in 3 year notes.

Mortgage prices are worse by .125% to .25% from the close on Monday.

Market commentary

This week’s economic calendar is lighter than the previous week’s with the main reports being Retail Sales, confidence and the weekly jobless claims.

The U.S. Treasury will be auctioning $66 billion in debt; 3-year notes (Tuesday), 10-year notes (Wednesday), and 30-year bonds (Thursday).

Oil is on fire, literally and figuratively. WTI (West Texas) crude, the primary determinant of gas prices in the U.S., is currently trading $2 higher at $106.50 per barrel. The longer oil prices remain elevated, the more damage this does to economic growth. If this spike in prices is temporary the drag on the economy will be muted, but prices go much higher and remain there, economic forecasts will be revised lower very quickly. Bill Daley, the President’s new Chief of Staff, said this weekend that the President is considering tapping the strategic oil reserves to alleviate the rising prices.

Treasuries are giving back some of last week’s gains with the yield on the 10 year note rising from Friday’s close of 3.48% to 3.505%. Mortgage prices are worse by a few basis points.

Market commentary

The February employment reports bounced back following the weather-affected weakness in January. Total nonfarm payrolls grew 192,000 in February. Private payrolls grew 222,000 and January’s figures were revised from 50,000 up to 68,000. The biggest payroll losses came from state and local government where 30,000 jobs were lost as municipalities try to cope with shrinking budgets. The manufacturing sector added 33,000 jobs bringing their 12-month total of job growth to 189k, the best 12-month period for manufacturing since 1997. The increase in payrolls was very much in line with market expectations.
The good news for us is mortgage spreads are tightening this morning, so you will see pricing better by .25% to .375%.

Market commentary

Initial jobless claims for the week ending February 26 surprised the markets today by dropping more than expected from 388,000 to 368,000. The four-week moving average has fallen to 388,000, finally below the 400,000 number.

More positive news came from the Institute for Supply Management’s index of non- manufacturing businesses which increased to 59.7 from 59.4 in January. This is the highest level since August 2005 and suggests the U.S. economic recovery may be expanding from the manufacturing into the service sector.

Before we too excited let’s recall crude oil rose above $102.00 in Wednesday’s New York trading and remains in triple digits this morning. The longer oil prices remain elevated, the more likely that the spike will result in dampened U.S. economic growth. According to the Department of Energy average prices for a gallon of gasoline have risen $0.32 in 2011 and $0.69 from October 2010. This is a real tax on the American consumer and not to mention we are sending billions of additional dollars overseas.

Speaking of oil, a resolution in the Middle East or a positive payroll report on Friday, which appears likely to occur, could quickly reverse the recent strength in Treasuries. The improved jobless claims report sent yields on the 10-year from 3.48% up to 3.56% and has worsened mortgage prices by .25% to .375%.

Market commentary

According to the ADP Employer Services payroll report, U.S. employers added 217,000 private jobs in February. Economists projected that the ADP report would show a 180,000 increase. According to the report, the largest area of job growth was in the service sector, which includes financial services. I think we can all agree the growth in service sector jobs was not a result of hiring in the mortgage space, where we saw the opposite. While the ADP report is generally not an accurate predictor of the government’s nonfarm payroll report, today’s ADP is roughly inline with expectations for what we should see form the Labor Department on Friday.

The markets, both stocks and bonds, remain focused on events in the Middle East and North Africa. Oil traded above $100/bbl on the New York exchange this morning, and gasoline futures rose above $3/gal. At these levels we can expect to see $4/gal gasoline (for the “cheap” stuff) within the next few days.

In his testimony to Congress Monday, Fed Chairman Bernanke told us recent spikes in energy and food prices should be short lived and not impact the nascent economic recovery. I often think these folks should live in the real world with us; folks who purchase our own gas and food. Every extra dollar I spend on these items reduces my discretionary spending---a conversation that took place at the dinner table last night with my two teenagers.

Bonds are slightly lower in price today, as are mortgage prices.

Market commentary

The February ISM Manufacturing index continued its uptrend in February, rising to 61.4, placing the index at its highest level in 27 years as the manufacturing sector, led by overseas demand, continues to lead the economic recovery.
The main focus this morning was Fed Chairman Bernanke’s Semiannual Monetary Policy Report to the Congress (formerly known as the Humphrey-Hawkins testimony) was released. His speech did produce any surprises and Bernanke did not indicate that he would currently support changing the QE2 plans. He does note that the FOMC will continue to review its plans, saying: “My colleagues and I continue to regularly review the asset purchase program in light of incoming information, and we will adjust it as needed to promote the achievement of our mandate from the Congress of maximum employment and stable prices. We also continue to plan for the eventual exit from unusually accommodative monetary policies and the normalization of the Federal Reserve's balance sheet. We have all the tools we need to achieve a smooth and effective exit at the appropriate time.”
So, after all of that, bond prices are retreating this morning pushing the yield on the 10 year note to 3.45%. Mortgage prices are worse by .25%.