Mortgage Rates

Mortgage Rates Stocks strong this morning with the bond and mortgage markets trading lower in price and higher in yield. French President Francois Hollande led a revolt against Germany’s austerity-first doctrine for combating the financial crisis, winning easier aid terms for Spain and Italy in an effort to reshape the balance of power in Europe. At the 19th European summit since the crisis broke out, Hollande pushed through the concessions by threatening to delay endorsement of a deficit-reduction treaty that German Chancellor Angela Merkel touted as one of her signature achievements. Euro leaders agreed to let the permanent bailout fund pour money into Spanish banks directly, instead of channeling it via the Spanish government. Direct recapitalizations will be possible once Europe sets up a single banking supervisor, possibly as early as 2013. Spanish and Italian bonds surged after euro-area leaders expanded steps to stem the debt crisis by easing repayment rules for emergency loans to Spain’s banks and relaxing conditions on potential help for Italy. Given past non-performances when EU summits were held, this one is being considered some kind of success. May personal income increased 0.2% while spending was unchanged, income was on target but spending was weaker than +0.1% expected. At 9:30 the DJIA opened +120, NASDAQ +58; the 10 yr note at 9:30 -22/32 1.66% +8 bp, 30 yr MBS price -7/32 (.22 bp) frm yesterday’s close. At 9:45 the June Chicago purchasing mgrs. index, expected at 52.4, came at 52.9 frm 52.4 in May. The employment index at 60.4 frm 57.0, new orders at 51.9 frm 52.9 and prices pd at 54.0 frm 60.4. The data slightly better than expected but no noticeable reaction to it as the stock market was already up over 170 points and the 10 yr -19/32 at 1.65% +7 bp. At 9:55 the U. of Michigan consumer sentiment index was expected at 74.1, it fell to 73.2; the current conditions index at 81.5 frm82.1, the expectations index at 67.8 frm 68.9. All the indexes are the lowest since last Dec. There was no selling on the data as markets are totally consumed with what is presently seen as significant progress at the EU summit. More likely, a relief since there was little belief that anything would come from the 19th summit since the first 18 didn’t lead to anything of substance. Although there was better news out of the EU summit that was widely expected to be anther summit with nothing emerging, the US interest rate markets continue to drift in their trendless and sideways moves. The 10 yr note support remains at 1.70% and strong resistance at 1.56%. The bullish bias on the US rate markets is still intact but is losing momentum over the last three weeks; we will hold for now but a move on the 10 yr above 1.70% will set off additional selling and rates will inch up. ON the downside for yields, there isn’t any momentum or reason now to add more bond buying.

Mortgage Rates

Mortgage Rates The equity markets opened weaker this morning boosting the rate markets. Still no directional trend though as the bond and mortgage markets continue in their tight ranges. At 8:30 weekly jobless claims were expected down 2K but fell 6K to 386K; however not a good report. Last week’s claims were revised higher to 392K from 387K continuing the trend of upward revisions on claims. Continuing claims did fall, to 3.296 mil frm 3.311.mil and the 4 wk average also declined a little, to 386,750 from 387,500 last week. There wasn’t much reaction in the markets to the data. The final report on Q1 GDP was right on, +1.9% unchanged from last month’s preliminary report. Unemployment remains elevated on concerns about the fallout from the European debt crisis and the so-called fiscal cliff that will face the U.S. at the end of this year may prompt employers to keep payrolls lean. The Bush tax cuts set to expire at the end of this year and the reduced SS payments also set to end. Given the elections and the inability of Congress to do anything along with declining economic outlooks for most of the global markets are not building blocks to recovery and lower unemployment. Payrolls in May expanded by 69,000 workers, the slowest pace in a year, and have cooled each month since January. The jobless rate, which climbed to 8.2% in May, has been stuck above 8 percent since February 2009, the longest stretch of such elevated levels in the post-World War II era. JP Morgan Chase’s losses on that hedge trade that went wrong are now seen to be as high as $9B, up from the $2 to $4B that Janie Dimon had talked about. The increased loss estimates are sending the bank’s stock down and dragging the rest of the big banks with it. Yesterday Britain’s Barclay Bank was fined $431 mil for ostensively manipulating LIBOR rates. Its shares dropped as much as 18% as U.K. Chancellor of the Exchequer called for a criminal probe amid speculation that lenders could face billions of dollars in lawsuits. Traders at the U.K.’s second-biggest bank by assets routinely coordinated with counterparts from at least four other banks in an attempt to move interest rate benchmarks, according to documents released yesterday by the U.S. Commodity Futures Trading Commission, the U.S. Justice Department and the U.K. Financial Services Authority. Nearly a day goes by without some kind of scandal or negative news with big banks; a trend that is now 5 years old and with no end of it in sight. An index of executive and consumer sentiment in the 17-nation euro area dropped to 89.9 from a revised 90.5 in May, the European Commission in Brussels said today. That’s the lowest since October 2009. In Germany, the number of people out of work rose a seasonally adjusted 7,000 to 2.88 million. Germany’s adjusted jobless rate held at 6.8% in June, but with no agreement on how to deal with debts in a number of EU countries the economy of the euro region is going to fall further. A gauge of sentiment among European manufacturers fell to minus 12.7 from minus 11.4 in May, the commission’s report showed. That’s the lowest since February 2010. An indicator of services confidence dropped to minus 7.4 from minus 5.2, while a gauge of consumer sentiment slipped to minus 19.8 from minus 19.3. The EU summit is underway now in Brussels however Germany put a bucket of water on creating euro bonds earlier this week, now there isn’t much expected when the summit concludes tomorrow. The DJIA opened -85, NASDAQ +23; the 10 yr note at 1.58% down 5 bp and up 12/32; 30 yr mortgage prices up 5/32 (.15 bp) frm yesterday’s closes. Markets are waiting for the Supreme Court’s decision on Obamacare that will be released today. Talk that in the next hour. The ruling will have a number of potential impacts depending on what the Court says. I the meantime videos of people in front of the Court resembles a circus atmosphere with one sign being carried saying, “you can’t make this kind of thing up”. Just as we send this Reuters is reporting the individual mandate has been upheld. Treasury will auction $29B of 7 yr note this afternoon at 1:00.

Mortgage Rates

Mortgage Rates The bond and mortgage markets continue to trade quietly with little change this week ahead of the EU summit beginning tomorrow. The stock indexes a little better early on as May durable goods orders were better than thought. Durables up 1.1% with forecasts of +0.5%; ex the volatile transportation orders up 0.4%, less than 0.7% expected. April ex transportation orders were revised from -0.9% to -0.6%. Growth is cooling as a slowdown in global markets emanating from Europe harms exports and curtails equipment spending, hurting sales at manufacturers. At 9:30 the DJIA opened +45, NASDAQ +12; the 10 yr note at 9:30 +1/32 at 1.62% while mortgage prices were down 1/32 (.03 bp) frm yesterday’s close. Italy’s 10-year bond yield fell three basis points, or 0.03 percentage point, to 6.15%, after rising to 6.20%, the highest level since June 14. Spain’s 10-year yield declined two basis points to 6.85%, after jumping 49 basis points over the past two days. Spain and other countries are going to push for measures to bring down borrowing costs when European Union leaders meet for a two-day summit starting tomorrow in Brussels. German Chancellor Angela Merkel said today issuing common bonds is the “wrong way” to achieve the greater integration needed to resolve the debt crisis. She said Spain was right to request for help for its banks and Italy was on path to growth. Merkel has caused tension among EU members by resisting calls for joint euro bonds. Germany’s 10-year bund yield climbed four basis points to 1.55% after dropping to 1.46% two days ago, the lowest level since June 19. It wasn’t too long ago that the German 10 yr traded 30 basis points lower in yield than US 10s, now just 7 bps lower. Merkel said that euro bonds, euro bills and debt redemption funds are unconstitutional in Germany and economically “wrong and counterproductive.” The EU summit appears to be an attempt to get euro bonds to take the heat off Spain and Italy as well as other debt ladened countries in the region. “I fear that at the summit there will be much too much talk about mutual liability and far too little about improved oversight and structural measures,” she said. “Oversight and liability have to go hand in hand. There can only be joint liability when adequate oversight is ensured;” Germany isn’t about to tie itself to poorly managed countries. “The sovereign debt crisis shows us daily that deficiencies in one euro-zone country can cause difficulties in the entire euro zone,” Merkel commented. “It also shows us that national answers aren’t enough to secure the euro area’s stability.” The summit isn’t going anywhere as long as Germany doesn’t get its way. The NAR reported May pending home sales up 5.9% with forecasts of an increase of 1.0%. Much stronger with strength coming from the West where prices are increasing in places like Phoenix and Las Vegas. Yr/yr pending home sales up 13.3%. On the news the stock market increased a little but the bond and mortgage markets showed no reaction. This afternoon Treasury will auction $35B of 5 yr notes; yesterday’s 2 yr was OK but not unusually strong; the 5 yr may also have a little less bidding today. Mortgage applications decreased 7.1% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 22, 2012. The Refinance Index decreased 8.0% from the previous week. The seasonally adjusted Purchase Index decreased 1.0% from one week earlier. The refinance share of mortgage activity decreased to 79 percent of total applications from over 80 percent the previous week. The adjustable-rate mortgage (ARM) share of activity is about 4.0% of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.88% from 3.87%, with points decreasing to 0.40 from 0.49 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) increased to 4.12% from 4.06%, with points decreasing to 0.35 from 0.38 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.71% from 3.72%, with points decreasing to 0.46 from 0.47 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.24% from 3.25%, with points decreasing to 0.44 from 0.45 (including the origination fee) for 80% loans. The average contract interest rate for 5/1 ARMs increased to 2.81% from 2.75%, with points increasing to 0.41 from 0.33 (including the origination fee) for 80% loans.

Mortgage Rates

Mortgage Rates Treasuries and mortgages improved yesterday as the stock market declined; today, as has been the case recently, after a day of improvement in the bond markets prices are weaker. The stock indexes are better this morning, both markets are in tight narrow ranges for the last three weeks. The Case/Shiller April price index declined in April but was the best in months. Property values in 20 cities dropped 1.9% in April from the same month in 2011, the smallest decline since November 2010, after decreasing 2.6% in the year ended March. Phoenix showed the biggest adjusted monthly increase, with prices rising 2.5% from March. Detroit showed the biggest decrease at 2.1%. Ten of the 20 cities in the index showed a year-over-year decline, led by a 17% drop in Atlanta, the only city to show a double-digit decrease. Phoenix showed the biggest year-over-year increase, with prices rising 8.6% in the 12 months to April. At 9:30 the DJIA opened +24, NASDAQ +10; the 10 yr note -9/32 at 1.64% +3 bp and 30 yr mortgage prices down 4/32 (.12 bp) frm yesterday’s close. At 10:00 June consumer confidence index, expected at 64.0 frm 64.9, fell to 62.0 and May revised to 64.4 The present situation index at 46.6 frm 44.9 (revised frm 45.9); the expectations index at 72.3 frm 77.3 (revised frm 77.6). The confidence index is the lowest since last January and the expectations index the lowest since last November. No reaction to the weaker data, yet it is another weak report as most reports have been the last six weeks. At 1:00 Treasury will auction $35B of 2 yr notes; demand is expected to be OK but not stellar. Europe still is the centerpiece for global market outlooks as the region is completely unable to solve the debt issues in the EU. Thursday begins the 19th summit meeting since 2010 when the crisis began; no progress so far in attacking the problems head on and there isn’t likely to any progress this time around. Four officials led by European Union President Herman Van Rompuy today released a road map to a fiscal and banking union that ran into immediate criticism from Germany for placing too little emphasis on controlling national budgets. The “map” centered on common banking supervision and deposit insurance and a “criteria-based and phased” move toward joint debt issuance. It also suggests that the EU could impose upper limits on annual budgets and debt levels of nations that use the euro. Germany’s instant opposition lessened the chances that the summit will end with any plan once again. Nero was said to have sat and played his lute while Rome burned down, today Europe is burning while all the leaders play their fiddles. US interest rates remain essentially unchanged now for the last three weeks; improving yesterday and this morning falling back. There is little chance the bond and mortgage markets will change much until the end of the circus known as the EU summit meeting that concludes on Friday. Based on news reports this morning it appears it will be another summit that fails to accomplish much and in turn should keep US interest rates from increasing. We still hold that as long as the bellwether 10 yr note can hold under 1.70% the outlook will remain positive for the bond markets.

Mortgage Rates

Mortgage Rates Treasuries and mortgages opened slightly weaker this morning with stock indexes a little better early on after the DJIA dropped 251 points yesterday. There are no data releases today and being Friday markets are likely to be rather mundane through the day. Late yesterday afternoon Moody’s lowered credit ratings on 15 US and global banks, commenting the deterioration in debt quality has become worrisome. That Moody’s lowered big banks hasn’t caused any serious reaction, in fact after the ratings were announced the banks affected actually rallied in after-market trading yesterday. Moody’s announced last February it was analyzing banks in the wake of Europe’s debt crisis and originally the credit rating cuts were expected in May but Moody’s is saying it delayed it to give additional time to do its homework. The idea is that with lower credit ratings borrowing costs would increase, in this case that isn’t very likely as borrowing costs are so low and in some sense it is all relative in that most of the big banks fell together. One big bank commented the move was backward thinking as most banks that were cut were already beefing up their balance sheets. US banks downgraded; Citi, BofA, Goldman Sachs, JP Morgan Chase and Morgan Stanley. Moody’s lowered rating based primarily on its outlook that global growth is declining. The evidence of global slowing continues almost daily; today German business confidence fell to the lowest in more than two years in June as the worsening sovereign debt crisis clouded the economic outlook. The Munich-based Ifo institute said today its business climate index, based on a survey of 7,000 executives, dropped for a second straight month to 105.3 from 106.9 in May. That’s the lowest reading since March 2010. Yesterday a survey of purchasing managers showed German manufacturing is contracting at the fastest pace in three years. He strongest economy in the euro region is sliding rapidly as the EU struggles to find a plan to shore up banks in Spain and Italy, work out a plan to keep Greece from crumbling and help Ireland and Portugal. In Italy, an index of consumer confidence fell to 85.3 in June, the lowest since the data series began in 1996, from 86.5 in May. Next week (28th and 29th) the EU will hold another summit meeting to TRY to find a solution to Europe’s debt and economic crises. The land of constant meetings continues with increasing loss of confidence that there is anything that will come of it. In the meantime the European Commission forecasts the euro-area economy will shrink 0.3 percent this year. At least eight member states are in recession. Spain’s 10-year bond yield surged above 7 percent this month, the level that prompted Greece, Portugal and Ireland to seek bailouts. At 9:30 the DJIA opened +68, NASDAQ +10; the 10 yr note -13/32 at 1.66%. MBS 30 yr mortgage prices -4/32 (.12 bp) frm yesterday’s close. Mortgage rates and treasury rates are confined within a narrow trading ranges. The bellwether 10 yr note since early June has stayed in a 10 to 12 basis point range with its 20 day average at 1.66% with the note at the moment at 1.65%, so far the 10 yr has note moved above its 20 day average on the yield since early April. 30 yr mortgages also holding its 20 day average on selling since early April. The relative strength index, measure of market momentum, on the 10 yr and MBSs remains slightly bullish. The Fed’s extension of Operation Twist through the rest of the year announced on Wednesday, isn’t pushing rates lower;$267B of buying at the long end of the curve isn’t likely to have much impact. The direction for rates over the next month will be decided by what happens in Europe and the EU summit next week. IF, and it is a huge IF, somehow Europe develops a plan to keep banks from failing and finds a way to support the debt crisis US interest rates will likely increase a little as safety moves into US treasuries will be unwound.

Mortgage Rates

Mortgage Rates Weekly unemployment claims at 8:30 were essentially unchanged at 387K -2K from last week. Last week’s claims were revised from 386K to 389K, the fourth week in a row claims have been revised higher from what was originally reported. Continuing clams were unchanged at 3.299 mil. The 4 week average increased from 382.750 last week to 386,250. There was little market reaction to the data but it is one more data point that confirms the economy is slowing. Yesterday’s FOMC statement, after continual comments that the economy was growing, the Fed admitted its outlook had been too optimistic; being dragged lower on Europe’s inability to find any long term solutions to its debt and bank problems. The claims report substantiates employers are not willing to hire. Prior to the release the 10 yr traded -1/32 in prices, after the report it was +1/32 with no change in the yield; mortgage prices generally unchanged both before and after the report. At 9:30 and prior to key data at 10:00, the DJIA opened +23, NASDAQ -2; 10 yr note 1.64% -1 bp +4/32 and mortgage price on 30 yr fixed +3/32 (.09 bp). 10:00 data; the June Philadelphia Fed business index saw a huge decline, the index at -16.6 after the May index was revised lower to -5.8; new orders -18.8 frm -1.2, prices pd -2.8 frm +5.0, employment at 1.8 frm -1.3. Any reading under zero is considered contraction; the report is rather shocking but is in line with comments yesterday from the FOMC that the economy is weakening on Europe’s fumbling. May leading economic indicators at 10:00 increased 0.3% against forecasts of unchanged. May existing home sales were expected to have declined 1.3%, as reported sales were down 1.5% to 4.55 mil; the median sales price at $182,600, yr/yr up 7.9%. According to sales there is a 6.6 month supply of unsold homes. Yesterday’s FOMC policy statement on one hand was disappointing to the markets that the Fed didn’t announce another QE 3, but extended Operation Twist through the end of the year. The Fed will continue to buy longer dated treasuries (6 yr to 30 yr terms) while selling notes under 6 yr terms for a total of $267B. The Fed wants to keep long term rates from increasing but resisted a wider easing move even though the Fed is now saying the economy is not expanding as the Fed thought it would in recent outlooks. On the other hand, that the Fed is increasingly concerned the economy is slowing is motivating some in the markets that later this year the Fed will be “forced” into another stronger easing move. That idea seems to be supporting the equity markets at the moment. Euro-area services and manufacturing output contracted for a fifth month in June, suggesting the economy may fail to grow in the current quarter. A composite index based on a survey of purchasing managers in both industries in the 17-nation euro area held at 46, the same reading as in May, London-based Markit Economics said today. In China, a purchasing managers’ index from HSBC Holdings Plc and Markit Economics gave a preliminary reading of 48.1 for June, indicating that manufacturing in the world’s second-largest economy will shrink for an eighth month. Readings above 50 mean the industry expanded. Both the 10 yr note and the 30 yr 3.5 FNMA coupon continue to hold their technical bullish bias. The 10 has strong resistance at 1.56% with strong support at 1.70%. The July 30 yr FNMA has successfully held at its 20 day moving average as has the 10 yr note on any selling. This morning’s data will support treasuries and mortgages as the data continues to weaken.

Mortgage Rates

Mortgage Rates The Greece vote yesterday to some degree confirmed Greece will stay in the Union. At least for a while. The conservative party that backs keeping Greece in the EU won by less than a majority taking 30.1% of the vote with 65% counted while the radical Syriza party that wants to bolt the Union took 26.5%. The conservative New Democracy Party has 103 seats of the 300 seat parliament while Syriza has 70 seats; now the New Democracy Party has to form a government that has the votes to work out a plan to stay in the Union. The situation in Greece is far from settled and we continue to believe before its all over (whenever that may occur) Greece will leave the Union as will some of the other troubled debt loaded countries. In the meantime that will likely last another couple of years the world will have to put up with what now appears a failed experiment joining so many sovereign countries under one umbrella. Last week Alan Greenspan joined in with his comment, “ it was a noble but failed experiment. 17 countries, 17 parliaments, 17 central banks; 17 opinions; not an easy situation to expect something of substance. Spain’s 10 yr debt rose above 7.0% today; Spain is slipping and may lose its borrowing party while getting money frm the EU and ECB to keep its banks from failing. Spanish debt has slumped, pushing the 10-year yield today to a euro-era record of 7.14%. The bonds are the worst performers among 26 developed markets since June 9, when the Economic minister said he would request as much as 100 billion euros ($127B) of emergency loans from the euro area to shore up a Spanish banking system hobbled by bad assets. The bank aid will increase Spain’s debt to about 90% of gross domestic product, Moody’s Investors Service said on June 14, since the sovereign is responsible for repaying the loans. That threatens to further limit its ability to sell bonds, Moody’s said, as it dropped Spain’s rating three levels to Baa3, one step above junk. Italy’s 10-year yield climbed 14 basis points to 6.06%. The U.K. two-year gilt yield slid to as low as 0.173%, a record. G-20 countries meeting in Mexico with the topic being Europe. These G meetings usually don’t amount to much; photo ops and quotes structured to make leaders look good. Nevertheless there will be comments about how G-20s are concerned and will help if certain conditions are met. After the G-20 gathering, Italian Prime Minister Mario Monti will host a meeting in the Italian capital on June 22 with Merkel, Hollande and Spanish Premier Mariano Rajoy to seek common ground. The three will gauge Germany’s position after Merkel last week said her country’s resources weren’t “infinite” in the “Herculean task” of mastering the debt crisis -- and that jointly issued euro bonds and a euro-wide deposit insurance were a non-starter. Merkel’s role as leader of Europe’s biggest economy gives her an effective veto on crisis-fighting policy. Treasuries and mortgages doing slightly better this morning as the stock indexes slightly weaker. At 9:30 the DJIA opened -47, NASDAQ -16; the 10 yr note +5/32 at 1.57% -1 bp; 30 yr mortgage prices at 9:30 +1/32 (.03 bp). The only data today; the June NAHB housing mkt index was expected at 28 unchanged from May; the index increased 1 point to 29 after increasing 4 points in May. The index is at its best level since May 2007; in that context it clearly shows how weak the housing market is. This week most all data is directed to the housing sector with May housing starts and permits on Tuesday and May existing home sales on Thursday. Thursday we get the weekly unemployment claims currently expected -6K at 380K. Thursday also has the key Philadelphia Fed business index, expected at -3.5 frm -5.8 in May. It looks like a quiet day; interest rate markets about unchanged and the stock market showing little appetite for rallying so far. If he stock indexes turn positive the bond and mortgage markets will likely see some selling. With the Greek vote behind us the next key event is the FOMC policy statement on Wednesday at 12:30 then Bernanke’s press conference at 2:15. In the absence of any news out of Europe the US markets are not likely to change much until Wednesday afternoon.

Mortgage Rates

Treasuries, mortgages and the stock indexes all better early this morning. Prior to 8:30 stock indexes were higher than at 8:30 after the June NY Empire State manufacturing report was very weak. The index was expected at 10.0 frm 13.5 last month, as reported the index fell to 2.29 with May revised to 17.09. The components also weaker; new orders at 2.18 frm 8.32, employment at 12.37 frm 20.48 and prices pd at 19.59 frm 37.35. Readings greater than zero signal expansion in the so-called Empire State Index, which covers New York, northern New Jersey and southern Connecticut. The last negative reading was in October. Factory executives in the New York Fed’s district were also less optimistic about the future. A measure of the outlook six months from now fell in June to 23.1, the lowest since October, from 29.3 the month earlier. The next data hit at 9:15; May industrial production and factory usage. Production was expected to be up 0.1%, it declined 0.1%. May factory use expected at 79.2% fell to 79.0% but still the highest level or three years. The reaction was minor initially but by 9:30 treasuries and mortgages were at their best levels of the session so far. The Greek election on Sunday is the dominating factor for the markets today; Greece will vote on whether it wants to say or leave the EU, meanwhile the EU leaders do not want Greece to depart, fearing other countries will walk. Yesterday afternoon news out of the region that central banks in the EU were prepared to provide additional funds to Greece to help Greece lessen the austerity forced on the country by the EU lead by Germany’s insistence that Greece cut spending, cut employment and increase taxes. Greek citizens are rebelling, the vote for the party that calls for staying in the EU or the party that wants to leave, according to polls is too close to call. Central banks intensified warnings that Europe’s failure to tame its debt crisis threatens to roil the world’s financial markets and economy as Greece’s election in two days looms as the next flashpoint for investors. At 9:30 the DJIA opened +50, NASDSAQ +6. The 10 yr note yield at 9:30 1.58% -6 bp and 30 yr MBSs +9/32 (.28 bp) frm yesterday’s close. The U. of Michigan consumer sentiment index hit at 9:55, thoughts that the index would decline to 77.0 from May final at 79.3, the index fell to74.1; the expectations index at 68.9 frm 74.3, current conditions at 82.1 frm 87.2, both the lowest since last December. The 12 month outlook index at 82.0 frm 91.0. Although the report is weaker than thought it didn’t have any immediate impact on the stock market or the rate markets. Investors continue to believe a Fed easing will turn the economic outlook. That said, these days there isn’t much investor money in the stock market, its all computers and traders; those with a time frame of ore that a week or two are sitting this uncertainty out. Honk if you heard this before. European Union leaders will press for new efforts to boost economic growth and improve lending conditions when they meet later this month, according to a draft document prepared for a June 28-29 summit in Brussels. The 27-nation bloc will pursue growth measures at a time when, in the words of European Central Bank President Mario Draghi, “there is no inflation risk in any European country” and the ECB will continue to provide liquidity to the banking system. The recent economic reports have heightened expectations the Fed will ease again when the FOMC meets next week. The data has confirmed the US economy is slowing, being dragged down by Europe’s inability to find a solution to its debt problems. While the softening in the outlook is real, the Fed isn’t likely to ease much, we expect the FOMC to announce an extension to Operation Twist that will expire at the end of this month. Extending the Twist will help keep long term interest rates from increasing much, but there isn’t any evidence that it will help the economy much. Until Europe is settled with plans that make sense to stimulate its economies, growth will continue to stall.

Mortgage Rates

Mortgage Rates Prior to 8:30 this morning the rate markets were a little weaker in price; the 10 yr note -6/32 at 1.68% and mortgage prices -3/32 (.09 bp). At 8:30 May retail sales were reported -0.2% about in line with forecasts, the core (ex auto sales) -0.4% weaker than thought. April retail sales was revised from +0.1% to -0.2%, April ex autos revised from +0.1% to -0.3%. The revisions to April caused stock indexes to decline with the DJIA futures -53 at 9:00. Also at 8:30 May producer price index, expected -0.4%, fell 1.0%; ex food and energy +0.2%; yr/yr PPI +0.7% but yr/yr core +2.7%. The April revisions supported the bond and mortgage markets; at 9:00 the 10 yr +6/32 at 1.64% and MBS 30 yr price +3/32 (.09 bp). European leaders may consider relaxing Greece’s austerity program after election, the Financial Times edition reported without citing anyone. Syriza’s leader, the Greek party that wants to keep Greece in the EU, wrote in the Financial Times that his party is committed to keeping the country in the euro area and will seek to amend a bailout agreement the nation signed in March with the European Union and the International Monetary Fund. In the final polls before this week’s vote showed the New Democracy party retaining its lead over Syriza, with the support of 26.1% of 1,012 Greeks surveyed. Syriza had 23.6%. That poll showed that Syriza gained 3.5 points in a week, compared with less than a percentage point for New Democracy. Sunday Greeks will vote once more after there was no consensus two months ago at the last election. Escalating borrowing costs and shrinking output are opening divisions among EU leaders who face a series of hurdles in the coming days as bond investors question their ability to hold the euro area together. Spain and Italy appealed to European policy makers to step up their response to the financial crisis after a 100 billion-euro ($125 billion) lifeline for Spanish banks failed to calm markets. Spanish Prime Minister Mariano Rajoy said today he’ll “battle” central bankers refusing to buy debt from peripheral nations. Rajoy published a letter to European Union leaders calling for the European Central Bank to buy debt from the countries struggling to shore up their finances. Still about as much uncertainty today as has been the case for over two years; as long as it continues money of al denominations will continue to seek safety rather than assume risk. Mortgage applications increased 18.0% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) the week ending June 8, 2012. The week’s results included an adjustment for the Memorial Day holiday. The Refinance Index increased over 19% from the previous week to the highest index level since April 2009. The seasonally adjusted Purchase Index increased around 13% from one week earlier. The refinance share of mortgage activity increased to 79% of total applications from 78% the previous week. The adjustable-rate mortgage (ARM) share of activity remains around 5 percent of total applications from the previous week. The average loan size of all loans for home purchase in the US was $243,733 in May 2012, up from $238,135 in April 2012. The average loan size for a refinance was $226,576, up from $219,664 in April. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.88% from 3.87%, with points decreasing to 0.43 from 0.46 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 4.12% from 4.13%, with points increasing to 0.41 from 0.35 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.71% from 3.70%, with points decreasing to 0.59 from 0.60 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.23% from 3.20%, with points increasing to 0.48 from 0.46 (including the origination fee) for 80% loans. At 9:30 this morning the DJIA opened -38, NASDAQ -12. The 10 yr at 9:30 +5/32 at 1.65% -1 bp and 30 yr mortgage price +3/32 (.09 bp) frm yesterday’s close. At 10:00 April business inventories expected +0.2% increased 0.4%. Sales up 0.2%; the inventory to sales ratio 1.26 months. March sales were revised frm +0.6% to +0.2%. At 1:00 Treasury will auction $21B of 10 yr notes, yesterday’s 3 yr note auction was OK but not real solid. The demand for today’s 10 yr will be closely watched as an indication on whether investors are pulling back from the safety moves over Europe. Technically, the 10 yr note remains in bullish shape; as long as it doesn’t climb over 1.70% the outlook will remain positive. A close over 1.70% on the 10 will likely temper the bullish view, however to change the longer term view the 10 would have to close over 1.76%. MBS prices also still technically bullish; the July 30 yr FNMA coupon must hold above 104.23 bp, presently 104.78 bp. At 10:00 this morning the 10 yr note was at 1.63%, a close under 1.60% would break the uptrend that has increased the yield for the last 8 sessions.

Mortgage Rates

Mortgage Rates Yesterday the stock market closed weaker, down 143 on the DJIA, the bond and mortgage markets rallied with mortgage prices gaining .37 bp and the 10 yr yield -6 bp to 1.58%. This morning the stock indexes started stronger, and as usual the bond and mortgage markets started weaker. If one market rallies the other declines; a pattern that is very predictable these days. The stock market was boosted by comments from Chicago Fed President Evans this morning. At 8:30 May import and export prices; import prices fell 1.0% as expected and April prices were revised from -0.5% to no change. Export prices were expected +0.1% but declined 0.4%. Neither report had any influence on the markets. In pre-market opening the stock indexes traded better with the DJIA futures up 60 points at 8:45. At 9:30 the DJIA opened +30, NASDAQ +10; the 10 yr note -12/32 at 1.63% +5 bp and 30 yr MBS price -3/32 (.09 bp). Chicago Fed President Evans out today advocating more Fed easing to increase jobs. Evans isn’t a voter on the FOMC and he has been a strong supporter for the Fed to do more. “I’ve been in favor of pretty much any accommodative policy I’ve heard about,” Evans said in an interview on Bloomberg Television today. “Extending the Twist would be useful,” he said, referring to a plan expiring this month that lengthens the average duration of bonds in the Fed’s portfolio. “More asset purchases would be useful. More mortgage-backed securities purchases would be good.” “I would prefer that we worked harder to clarify our forward guidance,” Evans said in the interview recorded yesterday in Chicago, reiterating his call for the central bank to commit to low interest rates until the unemployment rate falls below 7% or inflation breaches 3%. Evans’s remarks contrasted with the views of some officials, including Atlanta Fed President Dennis Lockhart, who said yesterday he doesn’t see a need for more accommodation now partly because Treasury yields are so low. The differences of opinions and views within the Fed are not unusual but with the Fed intent on more clarity we actually hear the differences that were somewhat suppressed in the past. Next week (June 19th and 20th) the FOMC meeting takes place. Last week in his testimony to the Joint Economic Committee of Congress Bernanke was arguably less dovish than most expected but he was able to stem any major sell off in equities by noting that the Fed stood 'ready to act' if conditions worsened. His past credentials have earned him the nickname 'Helicopter Ben' and thus allow him the ability to provide verbal intervention. But, his rather vague answers regarding the tools that would be used to stimulate the economy were viewed by markets as slightly hawkish for the Chairman. Bernanke is continuing his plea that Congress help out with fiscal measures but this Congress can hardly agree on the time of day let alone tackle serious fundamentals and spur job growth; meanwhile the President is blaming Congress for the weak state of the economy saying he has sent Congress bills that never get passed----a Pontius Pilate thing. A new survey out frm BofA Merrill Lynch; 34% of investors expect the Fed to ease again; 44% of investors believe Greece will vote to stay in the EU when citizens vote this Sunday while 19% say Greece will exit. The majority is expecting the Fed to announce it will continue Operation Twist whereby the Fed is extending the maturity of its bond portfolio by selling short-dated notes while buying at the long end ( 7s, 10s and 30s). Yesterday Spain got 100B euros ($125B) to shore up its declining banking sector; this morning Spain’s interest rates are increasing as global markets are not impressed with the infusion and likely there will need to be more. 100B euros is seen as being just a down payment to save the banks; then Italy will come to call on the EU to do the same for its banks. In our opinion unless the IMF becomes involved with money the EU can’t get out of this mess, there just isn’t any desire on Germany’s part to take on the debt burdens of other EU crumbling countries. Treasury will begin this week’s auctions this afternoon with $32B of 3 yr notes, the auctions are expected to meet with decent demand. We do not expect much movement in the bond, mortgage and stock markets this week ahead of what will occur next week. The FOMC meeting, the G-20 meeting and the Greek vote next Sunday. This week the bond market will take its lead from the stock index trading; not the bond market leading, it’s the stock market that will set the tone on reactions to news and comments from Fed officials.

Mortgage Rates

Mortgage Rates Very early this morning the 10 yr note price traded down 10/32 at 1.66% but by 9:00 down -3/32 at 1.64% (the 10 hit 1.72% briefly on the news announcement); mortgage prices at 9:00 generally unchanged. Spain abandoned unilateral attempts to rescue its banks and became the fourth country in the 17-member currency union to seek an emergency bailout. The aid blueprint hammered out in an emergency conference call among euro finance chiefs two days ago is designed to create a line of defense if the Greek voting unleashes a new bout of market turmoil. Next Sunday Greece will vote again to form a government, two months ago there was no consensus with the country tilting toward rejecting the EU austerity pushed on it. The most recent surveys showed the main party opposing the terms of its bailout vying for first place. As the clock ticked on, the positive take over Spain’s cash infusion began to wear off; the stock indexes t 8:00 were +100 on the DJIA, at 9:00 +69. The bond market lost some of its price declines; while the Spain thing is welcome, there are still very high hurdles with Greece’s election and the belief Spain will need more to fend off bank collapses. Next week is a huge weak for the US and global markets. On Sunday the Greek election that at this point is too close to call on whether citizens will essentially vote to leave or stay, recent polls are slightly positive that voters will vote to say. On Monday the 18th there is a G-20 meeting scheduled I Mexico that will focus on Europe’s mess. On Tuesday and Wednesday (19th and 20th) the FOMC meets an Wednesday the policy statement and Bernanke’s press conference. There is still many that believe the Fed will announce some kind of QE, most likely an extension of Operation Twist set to expire at the end of the month. The excitement over Spain’s asking for $125B to shore up its banking system was short-lived with markets pulling back from the highs in stock markets. It is a step but a baby one at best, and indicates there are more troubles ahead. Attention now will turn to Italy, the third largest economy in the EU. The bailout helped move Italy to the frontline of the crisis, as bets increased Europe’s third largest economy may be the next one to succumb. Italy’s shrank 0.8% in the first three months of this year from the fourth quarter, confirming an initial estimate. Italy has 2 trillion euros of debt, more as a share of its economy than any advanced nation after Greece and Japan. Its Treasury has to sell more than 35 billion euros of bonds and bills per month to keep frm defaulting. Re-capping the reaction to the Spanish bailout; initially there was euphoria, the US 10 yr note last night hit 1.72% frm 1.64% close last Friday; it lasted about a minute or so before it backed down. Europe’s stock markets are better but off their highs, the US stock indexes also off the best pre-opening levels at 9:30. The Spain deal is a slight plus but not much and now the spotlight will also turn onto Italy and of course the Greek election next Sunday. At 9:30 the DJIA opened +75, NASDAQ +24; the 10 yr note rate at 1.65% +1 bp with 30 yr mortgage prices -4/32 (.12 bp). Expect continued volatility today in the US markets. This week Treasury will auction 3 yr, 10 yr an 30 yr issues to borrow $66B, the same amount Treasury has gone for over the last few months. Economic data; the calendar has meat on the bone and will get attention but as long as Europe flounders the main emphasis will remain on what snippets and news comes from the region as it continues to drag down global economic outlooks. There isn’t any data out today.