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%.