Market commentary

U.S. Treasuries are rallying sharply this morning pushing the yield on the 10 year note down to 2.20% after it touched 2.42% last week. It seems we are back to uncertainty in the Euro zone again this morning, which is probably something folks should get used to. Unlike the Federal Reserve in the U.S., there is not one central bank with similar authority, and given the diverse economies of the various countries, a resolution to this financial crisis will drag on.

This week brings us a full economic calendar and a two day Fed meeting, which begins Tuesday and will end Wednesday with the accompanying announcement. And on Friday the markets will get the all important payroll data, with current projections for job growth of 95,000 and the unemployment rate holding at 9.1%.

Market commentary

Europe finally delivered on a bailout plan and stronger than expected U.S. GDP growth sent U.S. stocks soaring Thursday, while creating a rout in the bond market. Adding to the pressure on bonds was a disastrous 7 year note auction.

This morning it was reported that personal income rose less than expected in September, rising just 0.1% at the headline level. Real income, however, fell for the third month in a row at a rate of -0.05%. Despite weak income growth, spending chugged along at a 0.6% growth rate, an increase from 0.2% in August. Given the weak employment picture this is not a sustainable trend for spending to outpace income growth at such a large spread. The result has been a drop in the savings rate to 3.6%, the lowest level since December 2007. Unless real incomes begin to rise it is hard to imagine that consumption will continue at its current pace.

Next Tuesday, November 1, 2011, the Fed will begin another two day meeting amid speculation the Fed will announce an outright purchase of mortgage backed securities, another round of quantitative easing or some other form of market manipulation. Stay tuned.

For today stocks are taking a breather from Thursday’s strong rally and we see a slight rebound in the U.S. Treasury market.

Market commentary

U.S. stocks are sharply higher this morning on what I would consider a relief rally on what seems to be “final” agreement on the Greek debt crisis. In addition, this morning’s report that GDP for Q3 grew at an estimated rate of 2.5% is adding to the stock market euphoria.

Even though the economy is reportedly growing job growth continues to struggle as noted by last weeks’ jobless claims for the week of 402,000, stubbornly remaining above the 400,000 level.

Treasuries gave some ground yesterday, and are selling off again this morning as investors move away from “flight to safety” trade. The yield on the 10 year note is now above 2.30%. Later today the U.S. Treasury will be auctioning $29 billion in 7-year notes and the Fed is scheduled to purchase $2.25 to $2.75 billion in 25- to 30-year Treasuries.

Market commentary

Mortgage applications rose 4.9% last week on upticks in both refinance and purchase applications, as the four-week moving average for refinance applications has doubled in the past five months as mortgage rates have fallen. However, applications remain well below recent peaks.

Durable goods orders fell 0.8%, however, ex transportation orders rose 1.7%, much better than the expected 0.4% increase. The transportation component is volatile as it includes aircraft orders which fluctuate dramatically month over month.

The bond market will be hit with a double dose of supply today as the Fed will be selling $8 to $9 billion of maturities between March `13 and October `14 as part of “operation twist, and the U.S. Treasury will be auctioning $32 billion in 5 year notes.

Treasuries caught a flight to safety bid Tuesday when EU Finance Ministers canceled their Wednesday meeting which was supposed to be the opening discussions of the newest EU summit. There is a large divide in Europe regarding how the bailout should be structured as well as how much of a haircut Greek bondholders should take. The current talk is of haircuts ranging from 40% (favored by the French) to 60% (favored by the Germans).

This morning U.S. Treasuries are trading lower in price/higher in yield and mortgage prices are approximately .25% worse than Tuesday’s mid-day improvement.

Market commentary

Weak economic data has U.S. Treasuries in rally mode this morning with the yield on the 10 year note falling from 2.255 to 2.17%. The Conference Board reported its index of consumer sentiment dropped to its lowest level since March 2009, coming in at a reading of 39.8, down from last moth’s number of 46.4.

On the housing market front the Case/Shiller price index was flat for the 20 MSAs it measures. On a year over year basis the rate of price decline is now only 3.8%.

The FHFA announced changes to the Home Affordable Refinance Program which should help more homeowners take advantage of the low interest rate environment. The key component of modification is which reps and warrants will be waived.

Market commentary

No major economic data on today’s calendar, however, the remainder of the week is full and will include the Case/Shiller home price index, new home sales, Durable Goods orders and third quarter U.S. Gross Domestic Product.

The markets spent most of last week focused on Europe, and that will remain a factor until there is a resolution to the financial crisis. In the U.S. the stock markets are moving higher and bond prices are slumping, pushing the yield on the 10 year note to 2.225%, up from Friday’s close of 2.18%. Mortgage pricing is worse by .25%.

Market commentary

After a busy week of economic releases, there are none scheduled for today. Interest rates continued their slow climb yesterday after a strong reading on the Philadelphia Fed manufacturing index. This index hit a six month high with most sub-components improving, except for the employment portion, which continued to decline.

This morning, stocks are higher in the US and Europe despite word of a delay until Wednesday of a planned meeting to announce a new “plan” to fix the European sovereign and financial crises. Bond prices are lower/interest rates higher again, with the yield on the 10 year note hitting 2.21%.

Market commentary

This morning bond prices are flat and stocks are trending lower. The weekly initial jobless claims were slightly above estimates coming in at 403,000 in the most recent week.
The main focus again today is Europe; the violence in Greece in front of the Greek Parliament’s vote later today on austerity measures, and the fact European authorities are not in agreement on a rescue plan, leaving the world waiting for signs of European stability and leadership.

Market commentary

This morning, the Producer Price Index for September came in well above estimates, rising 0.8% overall and 0.2% at the core level. Year over year, PPI is up 6.9%, its largest such rise since 2009. In addition to gas, food, and truck price increases, the costs of raw materials and other early stage inputs drove the increase. Keep in mind, the PPI is more volatile than its cousin, the Consumer Price Index. The CPI for September will be released Thursday with expectations for an increase of 0.3% and ex food and energy plus 0.2%.

Stocks fell hard Monday on weak earnings and the continued stalemate in resolving the European financial crisis. This morning both stocks and bonds are trading relatively flat with the yield on the 10 year note slightly lower at 2.135%. Mortgage prices have improved another .125% to .25%.

Market commentary

In addition to a full economic calendar the markets will be contending with third quarter earnings announcements and the possible solution or non-solution to the European financial crisis.

The Federal Reserve reported this morning that U.S. Industrial Production rose 0.4% in September, while Capacity Utilization increased 0.1%. The positive numbers indicate the U.S. manufacturing sector is maintaining and managing to grow, however slight that growth may be.

From Europe, German Chancellor Merkel made it clear today that this weekend’s European Union summit will not provide a complete fix to the financial crisis. Her comments sparked a retreat in the Euro and European bank shares, while providing a lift to U.S. Treasury prices in a flight to safety.

The improvement in Treasury prices is spilling over into the mortgage market, so mortgage prices are .125% to .25% better than Friday.

Market commentary

The U.S. stock markets are shaking off the lowest reading for consumer confidence in 30 years, and instead focusing on the better than expected increase in retail sales. The Thomson Rueters/University of Michigan index of consumer sentiment fell to 57.5 in early October, while retail sales dwarfed expectations, climbing 1.1%.

In addition to the strong retail sales report, news from Europe is raising expectations a resolution of the financial crisis there may be close; but we have heard that story before.
Bond prices are lower/interest rates higher as investors continue to move away from the risk free trade. The yield on the 10 year note has risen to 2.25% this morning and mortgage prices are worse by .375%.

Market commentary

Initial jobless claims for the week ending October 8 came in at 404,000 versus the previous week’s 405,000, making twenty-five of the past twenty-seven weeks in which we have seen claims above the 400,000 mark.

Wednesday the U.S. Treasury auction of 10 year notes was an ugly affair that sent bond prices a little lower with the yield on the 10 year note closing at 2.24%. Today’s auction of 30 year bonds will be the final leg of this week’s auctions. Bond prices are improving today as U.S. stock markets are weak. JP Morgan Chase announced third quarter earnings 4% lower than this time last year, and its share prices are trading lower, dragging other financial stocks along for the ride. The yield on the 10 year note has fallen to 2.155% and prices for mortgages are improved by .125% to .25%.

The Minutes from the Fed’s September meeting, released yesterday, show that the Fed is increasingly concerned about economic growth. "The risks to the growth outlook…were significant and tilted to the downside." After discussing several options, it was agreed the Fed would begin selling shorter term Treasuries to purchase longer term Treasuries, also known as Operation Twist. This is what helped push the yield on the 10 year note to 1.74% just days after the announcement.

Market commentary

The main event of today’s economic calendar will be the September FOMC Minutes. This was the meeting at which Operation Twist was implemented, and the markets will be interested to see if any FOMC members were in favor of QE3, cutting interest on excess reserves, or putting in place a rate cap on Treasury yields.

Alcoa was the first company to release third quarter results and the announcement was disappointing. In spite of this U.S. stock markets are moving higher and bond prices are headed lower/interest rates higher.

From Europe we hear that Slovakia, which represents just 0.6% of the EU economy, still needs to approve the expansion of the EU bailout fund. Internal politics in this country have delayed the vote until later this week; however, Slovakia’s approval is required for the measure to be implemented.

Tuesday’s 3 year note auction was fairly well received and will be followed today by a 10 year note auction today. As of this writing the yield on the 10 year note has risen from 2.15% at the market close Tuesday, to 2.22%. Mortgage prices are worse by approximately .25%.

Market commentary

Stocks were up 330 points yesterday on hopes that French President Sarkozy and German Chancellor Merkel are finally getting serious about resolving the euro zone financial crisis. The two leaders vowed to offer a joint plan within the next few weeks to bolster European banks, and to do whatever it takes. They did not address how they will deal with Greece which is a separate, but connected, issue.

Watching CNBC this morning the question was asked, “How does Slovakia affect the global financial system”? The answer is, Slovakia is the last of the 17 euro zone countries to vote on expanding the European Financial Stability Fund, and if approved, all EU members would have voted in favor of expanding the fund to help contain the financial market stress.

The positive news coming out of Europe this weekend and again this morning is leading U.S. Treasury prices lower/interest rates higher, and later today, the U.S. Treasury will auction $33 billion of 3 year notes, which could put additional pressure on bonds. The yield on the 10 year note has risen to 2.14% this morning and mortgage prices are worse by approximately .25%.

Market commentary

Last week seemed to be a key reversal for both bond and stock markets. After reaching historically low levels, Treasury yields moved higher every day while stocks managed to close in positive territory. The yield on the 10 year note closed Friday at 2.09%, and remember, the U.S. bond market is closed today.

U.S. stock markets are open today, and stock futures are pointing to a sharply higher market open. News this weekend that Europe will be helping their largest banks recapitalize and expectations that third quarter earnings will be positive for U.S. companies are supporting the equity markets. If the bond market was open, I expect we would see interest rates moving higher and investors leave the safety of Treasuries and move into higher risk investments.

Although the bond market is closed, HSOA will post pricing and the HSOA lock desk will be open normal hours, closing at 4:00 PM, PT.

Market commentary

September’s employment reports were better than expected with total payrolls increasing 103,000 while private payrolls grew 137,000. There was also a revision of +57,000 to August’s abysmal +0 payroll report. The manufacturing sector lost 13,000 jobs, its second monthly drop and the government sector lost 34,000. The largest gain came from the service sector, +119,000 which includes the return to work of the 45,000 striking Verizon workers, which helped account for the zero growth in August. The unemployment rate held steady at 9.1%.

Treasuries yields were already climbing prior to the jobs data, and quickly moved higher on the news, bringing us to a full week where the Treasury market has worsened each day. The yield on the 10 year note currently stands at 2.08%. Recall two weeks ago, after the last Fed meeting, the yield on the 10 year note fell close to 1.70%.

The bond market is closed Monday, October 10, 2011; however, HSOA will be open for business and will be accepting locks normal hours.

Market commentary

Treasuries sold off again on Wednesday, and are lower again today, mostly due to the absence of the flight to quality. The non-manufacturing ISM report was better than expected and there were no new reports of financial distress out of Europe. Today we see a similar pattern. Weekly jobless claims rose slightly; once again above the 400,000 market, and news from Europe tells us the EU is moving to shore up the capital of ailing banks. So now bad news equals no flight to quality bid.

The yield on the 10 year note has pushed higher to 1.955% and mortgage bonds are worse in price by approximately .25%.

We end today’s commentary with a quote from Steve Jobs 2005 Commencement Address at Stanford University – "Your time is limited, so don"t waste it living someone else"s life. Don’t be trapped by dogma - which is living with the results of other people's thinking. Don't let the noise of other's opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.”

Market commentary

ADP’s estimate of private sector created in September came in it at 91,000, slightly more than expected. According to ADP, small business is where job creation is occurring. Since the end of the recession, small business has added 633,000 jobs, medium firms have added 541,000, and large firms have cut 287,000. In other job related news, Challenger, Gray, and Christmas’ job cuts index rose 211% year over year for the month of September. This is the largest year over year increase in the index since the heart of the recession, and was driven by announcements from the Army and Bank of America.

The Institute for Supply Management reported its index for the non-manufacturing sectors of the U.S. economy fell to 53.0 from 53.3 in August. While this index remains in positive territory, the decline reflects the softness in economic conditions.

Fed Chairman Bernanke testified before Congress yesterday, justifying the aggressive role of the Fed by stating the “recovery is close to faltering” and that the U.S. economy is further away from full employment than price stability. His message was that the Fed was trying to spur the economy along but that fiscal policymakers (aka, the President and Congress) had to get involved also. Of course President Obama and Senator Durbin took on the challenge of job creation by attacking Bank of America for its debit card fee increase, the result of Senator Durbin’s legislation that limited the fees banks could charge to retailers for debit card transactions. Apparently the recent announcement by Bank of America that 30,000 layoffs were on the horizon, a cost cutting measure due to lower income, did not make it to Washington D.C.

For a third day in a row U.S. Treasuries are in decline. The yield on the ten year note has risen to 1.885% and mortgage bonds are worse in price by approximately .25%.

Market commentary

Monday, stocks opened the 4th quarter with their worst opening day performance since 1998. Everything seemed okay until mid-morning when bond prices began to run and stocks gave in to the uncertainty coming from Europe. The euro zone finance ministers did not approve the next round of bailout money for Greece, delaying the decision on the $10.7 billion payment until sometime after October 13.

Also helping the U.S. Treasury market was the Fed, which made their first "operation twist" purchases yesterday, buying over $2 billion in longer long maturities. The 30 year bond has rallied from 3.30% before the Fed announced operation twist to 2.76% this morning, although bonds have retreated as the day wears on. Mortgages are not performing well today as they are worse in by price by just over .375%.

Market commentary

The first of three big economic reports this week showed that manufacturing activity grew in September. The Institute for Supply Management reported its factory index rose to 51.6 from 50.6 in August. The steady decline in this index leading up to September had many worried the U.S. was falling into a double dip recession.

The remaining two reports on which the markets will focus are the ISM non-manufacturing, which will be released Wednesday, and the jobs data, which will be released Friday. Friday’s non-farm payroll report is expected to show 56,000 new jobs were added to the U.S. economy in September with the unemployment rate remaining steady at 9.1%.

Once again, the over-riding factor in the markets today comes from Europe as Greece is projected to now fall short of its 2012 goal of cutting its deficit to 6.5% of GDP. This puts in jeopardy a planned second international bailout and a growing risk Greece will default on a portion or all of its outstanding debt.

U.S. Treasury prices are higher aging this morning after some ugly stock sessions in Asia and Europe, and mortgage prices have improved by approximately .25%.