Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Friday, September 30, 2011
In this world of uncertainty and confusion we have been subject to wild gyrations in equity markets that have influenced daily trading in the bond and mortgage markets. Yesterday the DJIA closed up 143, this morning in futures trading the index at 9:00 was down 130. Yesterday mortgages closed better by .12 bp and up .25 bp frm 9:30; the 10 yr traded slightly over 2.00% most of the day but managed to fall back and close at 2.00% a very key level. This morning at 9:00 the 10 yield traded at 1.94% with mortgage prices +.31 bp frm yesterday's close. Rate markets have been tied into a very narrow range this week; conflicting news out of Europe and choppy stock markets keeping interest rates generally higher from last Friday's closes.
At 8:30 August personal income expected up 0.1% fell 0.1%, spending was expected 0.2%, it hit at 0.2%. July income revised to +0.1% frm 0.3% originally reported, spending in July revised from +0.8% to +0.7%. Treasuries and mortgages got a further bounce on the weaker income levels while the stock indexes declined further.
Most recent data on the US and global economies is declining and looking like the US and the world will fall back into recession, or for those like us that have never believed we came out of recession, a double dip. Even though data is confirming the decline there are more optimists that believe these are buying opportunities with good bargains. On the Street the mantra is never admit pessimism even in the face of reality, that was evident in 2008 and the sub-prime bubble. Chinese manufacturing shrank for a third month, the longest contraction since 2009. German sales fell the most in more than four years, while European inflation unexpectedly quickened to the fastest in almost three years this month. Industrial production in Japan grew less than economists had forecast. Concern that Europe’s sovereign-debt crisis will spread and the U.S. economic recovery is faltering has wiped out more than $9 trillion of value from global equities this quarter.
In Germany the upper house of parliament approved the enhanced fund today after the lower house voted 523 in favor and 85 against. Lawmakers approved giving the EFSF powers to buy bonds in secondary markets, enable bank recapitalizations and offer precautionary credit lines. At the moment it looks increasingly like Greece will dodge the inevitable bullet on Oct 13th and avoid what will eventually end in default and restructuring Greece's banks. In less than 2 weeks (Oct 13th) Greece will default unless it gets the funds to get by; it will get the money it needs but it won't change much for Greece and the EU sovereign debt problems.
At 9:30 the DJIA opened -92, the 10 yr note +27/32 to 1.91% -9 bp. Mortgage prices +16/32 (.50 bp) frm yesterday's close.
At 9:45 Sept Chicago purchasing managers' index, expected at 54.0 jumped to 60.4 frm 56.5 in August. New orders component at 65.3 frm 56.9, employment at 606 frm 52.1 and prices pd at 62.3 frm 68.6. The data much better but there was no improvement in the stock market and the rate markets held their gains prior to the report. Any index over 50 is considered expansion, the higher the stronger.
Finally today, at 9:55 the U. of Michigan consumer sentiment index, expected at 57.5 was better at 59.4; current conditions 74.9 frm 74.5, expectations at 49.4 frm 47.0 and the 12 month outlook at 39 frm 38. Treasuries and mortgages slipped slighty on the better data and a stronger Chicago PM index.
The volatility in the equity markets show little chance it will decline any time soon. Many reasons and extruded rational explanations; Europe's debt mess, US fiscal stand-off with our political system, and a housing sector still in deep depression----and the list goes on. For all of the talk and ink on what is happening, the reality is investors and consumers get it more than any other entity, politician or Wall Street gurus. There is no end in sight for this choppy highly volatile condition.
Friday, September 30, 2011
Thursday, September 29, 2011
Mortgage Market
Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Thursday, September 29, 2011
Treasuries and mortgages prior to 8:30 were a little better but data at 8:30 turned rate markets slightly weaker. Weekly jobless claims were expected to decline 4K, as reported claims were down 37K to 391K the lowest claims since the beginning of April. Continuing claims at 3.729 mil frm 3.75 mil. Q2 final GDP was expected to increase to 1.2% frm 1.0% on the prelim report last month; as reported Q2 GDP grew 1.3%. Both reports pushed the rate markets down a little and added more gains in the stock indexes; at 9:00 the DJIA +149, the 10 yr note at 2.01% +2 bp and mortgage prices -4/32 (.12 bp).
On the European scene; some positive movement from Germany. Germany’s lower house of parliament approved the expansion of a bailout fund for debt-stricken euro- area nations to help contain the sovereign-debt crisis. The lower house voted 523 in favor of legislation aimed at expanding the powers of the 440 billion- euro ($599B) European Financial Stability Facility, while 85 voted against the measures and three abstained. The legislation is set to be debated and put to a non-binding vote in the upper house tomorrow. Greece will run out of money on Oct 13th, which of course is the drop dead deadline for Europe's leaders to act or Europe's house of debt cards will come tumbling down.
While the German vote is a big step, the consensus from investors is still negative. Bloomberg ran a survey recently, the results were overwhelming that at least one country in the EU would be dropped in the next year. About 93% of investors expect Greece to eventually default, according to the quarterly Global Poll of 1,031 Bloomberg subscribers. Forty percent see the currency bloc losing at least one member in the next year.
At 9:30 the DJIA opened +191, the 10 yr note -7/32 at 2.01% with mortgage prices -4/32 (.12 bp).
At 10:00 NAR's July pending home sales (contracts signed but not yet closed) were expected down 1.5%; sales were a little better down 1.2%; yr/yr sales up 7.7%. Not much reaction initially. The three data points today all better than expected. The 10 yr note at 10:00 at 2.02%.
At 1:00 this afternoon Treasury will auction $29B of 7 yr notes. The 2 yr and 5 yr auctions met solid demand. Today's 7 yr should also get solid bidding.
The 10 yr note continues to hang close to 2.00%, so far unable to climb over it on a close but equally the momentum to lower rates has stalled. As we noted in yesterday afternoon the 10 yr note yield is now higher than it was prior to the Fed announcement of "Operation Twist". US treasuries at the moment are losing the safe haven trade as Europe gets closer to feed Greece more money. Moves into and out of treasuries will not completely erode; the situation in Europe and with its banks is far from resolved and in turn volatility will continue.
Technically; the 10 yr note is testing and holding its 20 day moving average at 2.03%. The 10 yr yield hasn't traded above its 20 day average since early July, then it was over its 20 day for just five sessions---take those away and the 10 hasn't been above it since the first of April. It is the same with the 3.5 FNMA coupon; its 20 day at 101.83 is just 22 basis points below the present price. The relative strength indexes for the 10 and FNMA 3.5 are also at pivotal levels. We still do not believe rates will increase much but based on price action it is becoming less bullish.
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com
Building Strong, Lasting Relationships; One Client at a Time.
Thursday, September 29, 2011
Treasuries and mortgages prior to 8:30 were a little better but data at 8:30 turned rate markets slightly weaker. Weekly jobless claims were expected to decline 4K, as reported claims were down 37K to 391K the lowest claims since the beginning of April. Continuing claims at 3.729 mil frm 3.75 mil. Q2 final GDP was expected to increase to 1.2% frm 1.0% on the prelim report last month; as reported Q2 GDP grew 1.3%. Both reports pushed the rate markets down a little and added more gains in the stock indexes; at 9:00 the DJIA +149, the 10 yr note at 2.01% +2 bp and mortgage prices -4/32 (.12 bp).
On the European scene; some positive movement from Germany. Germany’s lower house of parliament approved the expansion of a bailout fund for debt-stricken euro- area nations to help contain the sovereign-debt crisis. The lower house voted 523 in favor of legislation aimed at expanding the powers of the 440 billion- euro ($599B) European Financial Stability Facility, while 85 voted against the measures and three abstained. The legislation is set to be debated and put to a non-binding vote in the upper house tomorrow. Greece will run out of money on Oct 13th, which of course is the drop dead deadline for Europe's leaders to act or Europe's house of debt cards will come tumbling down.
While the German vote is a big step, the consensus from investors is still negative. Bloomberg ran a survey recently, the results were overwhelming that at least one country in the EU would be dropped in the next year. About 93% of investors expect Greece to eventually default, according to the quarterly Global Poll of 1,031 Bloomberg subscribers. Forty percent see the currency bloc losing at least one member in the next year.
At 9:30 the DJIA opened +191, the 10 yr note -7/32 at 2.01% with mortgage prices -4/32 (.12 bp).
At 10:00 NAR's July pending home sales (contracts signed but not yet closed) were expected down 1.5%; sales were a little better down 1.2%; yr/yr sales up 7.7%. Not much reaction initially. The three data points today all better than expected. The 10 yr note at 10:00 at 2.02%.
At 1:00 this afternoon Treasury will auction $29B of 7 yr notes. The 2 yr and 5 yr auctions met solid demand. Today's 7 yr should also get solid bidding.
The 10 yr note continues to hang close to 2.00%, so far unable to climb over it on a close but equally the momentum to lower rates has stalled. As we noted in yesterday afternoon the 10 yr note yield is now higher than it was prior to the Fed announcement of "Operation Twist". US treasuries at the moment are losing the safe haven trade as Europe gets closer to feed Greece more money. Moves into and out of treasuries will not completely erode; the situation in Europe and with its banks is far from resolved and in turn volatility will continue.
Technically; the 10 yr note is testing and holding its 20 day moving average at 2.03%. The 10 yr yield hasn't traded above its 20 day average since early July, then it was over its 20 day for just five sessions---take those away and the 10 hasn't been above it since the first of April. It is the same with the 3.5 FNMA coupon; its 20 day at 101.83 is just 22 basis points below the present price. The relative strength indexes for the 10 and FNMA 3.5 are also at pivotal levels. We still do not believe rates will increase much but based on price action it is becoming less bullish.
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