Mortgage Rates

Mortgage Rates 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. Still marking time in the bond and mortgage markets; not much change yesterday and this morning the bond and mortgage markets opened about unchanged. US stock indexes fell a little yesterday but this morning prior to the open the indexes traded better---but not much. The only scheduled data today; the July trade deficit was -$42.0B, slightly less than $44.0B expected and a little less than -$42.9B in June. No reaction to the report. This afternoon Treasury auction $32B of 3 yr notes, it should be OK but recent Treasury auctions haven’t seen the strong demand that was the case earlier this year as the EU debt crisis is presently in limbo with decreasing concern of defaults. Yesterday afternoon July consumer credit was expected to be up $10.0B; overall credit fell $3.3B while revolving credit (credit cards) fell by $4.8B, the second month in a row the use of credit cards have declined (June revolving credit fell $3.7B). July was a very strong month for retail sales but consumers apparently were paying cash and keeping their credit cards in their wallet. The early indications for August retail sales are positive which hints at a rebound for the revolving credit component in next month's consumer credit report, assuming that is that consumers returned to old habits. For all the optimistic talk that US consumers are increasingly more positive, the two months decline in the use of credit cards suggests consumers are still weary of the future. This morning the NFIB small business optimism index rose 1.7 points in August to 92.9 against estimates of 91.5. The index has averaged 90.0 during the recovery. Improvement in the economic outlook leads the August report followed by a rise in sales expectations and in employment plans. Capital spending plans are also up as are current job openings. On the downside are the assessment of credit conditions and of earnings trends was soft. Germany’s top constitutional court rejected a last-minute bid to delay a case over the European Stability Mechanism, the court said its ruling would be announced at 10:00 tomorrow. The ESM treaty has not been ratified, if the German high court rejects the treaty the ESM will likely fail. The judges will rule tomorrow on whether Germany may ratify the ESM, the final hurdle for the plan to rescue indebted euro-area member states. The consensus in Germany is that the court will allow the ratification, allowing the 500 billion-euro ($640 billion) European Stability Mechanism to be implemented. At 9:30 the DJIA opened +23, NASDAQ and S&P +1. The 10 yr note at 1.68% and 30 yr MBS price down 12 bp. Thursday the FOMC meeting will conclude with its policy statement; the markets remain convinced that the Fed will ease again at the meeting. Still some doubters but overall the Fed is expected to ease with increased purchases of MBSs and treasuries, maybe just an extension of Operation Twist. About the only positive that an easing will do is to keep interest rates from increasing; it will not have any significant impact on the economy. In the meantime markets should trade in a narrow range. We will have to wait to see how markets react on Thursday afternoon; given the majority of traders and investors believe the Fed will act, the bond market is not improving as we would expect.