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Wednesday’s Market Update
Stocks are pointed higher and Mortgage Bonds are lower so far this morning. The Mortgage Bankers Association reported that Mortgage Applications increased by a whopping 11.6% for the week ending 10/17. With the decline in rates last week, it should be no surprise that this move higher was led by Refinances, which surged 23% to the best level in almost a year. Refinance activity increased from 59 to 65% of total applications. Interest rates dropped 10bp from 4.20 to 4.10%, to the lowest level since May 2013. Purchases unfortunately did drop 5% and are down 9% from this time last year. But the numbers on Purchases do not adjust for the Columbus Day Holiday, which was the likely reason it dropped. ARMs increased to 9.4% of total applications, the highest level since June 2008.
The Mortgage Bankers Association also released some expectations for next year at their conference in Vegas this morning. They expect Purchases to increase by 15% and Refinances to decline by 3%. MBA Chief Economist, Mike Fratantoni, believes that stronger growth, job gains, and declining unemployment will help fuel purchases in 2015.
The Consumer Price Index (CPI), which measures inflation on the consumer level, was also reported. Headline and Core CPI, which strips out food and energy prices, were both up 0.1%. On a year over year basis, Headline and Core CPI remained stable at 1.7%. Signs of inflation are still nowhere to be seen. We will receive the Fed’s favorite measure of inflation, the Personal Consumption Expenditures (PCE), on October 31st.
Yesterday, the 10-year Treasury Note Yield concerned us when it broke above 2.21%. And it has moved higher this morning to 2.24%. With the recent quick move up in Stocks, it would not surprise us to see the S&P 500 reverse course, especially with the several resistance levels above. We will see how this unfolds later today.
Market Update
Stocks are lower and Mortgage Bonds are higher so far this morning. Dragging on Stocks are some weaker than expected earnings, namely from IBM. Ebola fears have begun to ease this morning as nearly all who were quarantined by the city of Dallas, because they had contact with the patient Thomas Duncan, have completed the 21 day incubation period and have been cleared of the disease.
It’s a quiet news day, but the economic data for the week heats up, highlighted by Housing and Inflation data. The week looks something like this:
Tuesday: Existing Home Sales
Wednesday: Mortgage Applications, Consumer Price Index
Thursday: Initial Jobless Claims, FHFA House Price Index
Friday: New Home Sales
The S&P 500 is lower and may be poised to test the lows again from Thursday in the coming week, which would be beneficial for Mortgage Bonds. The 10-year Treasury Note Yield tested very low levels and came up and tested 2.21% and is using this as a ceiling. It is encouraging if it stays beneath there.
Stocks are higher and Mortgage Bonds are lower so far this morning, but off their worst levels
Stocks are higher and Mortgage Bonds are lower so far this morning, but off their worst levels. It’s a relatively quiet economic news day, but the week heats up, highlighted with a bunch of housing data. Tuesday we will get the Case Shiller Home Price Index, FHFA House Price Index, and New Home Sales. On Wednesday, Purchase Applications and Durable Goods Orders will be released, and Thursday brings GDP, Claims, and Pending Home Sales. Stay tuned this week !!
There was some Fed speak Last Friday of interest. Narayana Kocherlakota said that the Fed still finds it appropriate to maintain the current target range for the Federal Funds Rate for a considerable amount of time after QE ends, especially if inflation continues to remain below 2%. He also said that there was no change in policy intention, despite recent statements. He remains a super dove and probably the most dovish among the Fed members. Furthermore, Richard Fisher, who is more on the hawkish side, said that the Fed’s comments were “a bit sloppy”. He wasted no time throwing her under the bus…
Housing and Market Update
Stocks are higher and Mortgage Bonds are lower so far this morning. Yesterday, there was a vote in Crimea on whether or not to reunite with Russia. It’s interesting to see how this vote could have an impact on our Bond market. While the vote was massively one sided, with 95% voting in favor to join Russia, let’s take a closer look at the choices. The voting options were to either join Russia or become independent. Returning back to the Ukraine was not an option. The US and EU are not pleased with the way this went about and both have already issued some minor personal sanctions against Russian officials, which are symbolic at best. It’s unlikely the EU can do much because they are dependent on oil imports from Russia. But the US is contemplating selling off some of its strategic petroleum reserve (SPR), as levels of this reserve are extremely high. A move like this would likely drive down oil prices and hurt revenues to Russia from sales of oil exports. Remember that few people know that Russia is the world’s largest oil exporter. How would Russia counter if the US opened up sales of the SPR? They have already begun by moving many of its holdings of US Treasuries out of the Fed’s custody accounts and into accounts that would allow them to liquidate them more easily. Remember that Russia holds nearly $140 Billion of US Treasuries. Far less than the roughly $1.3 Trillion held by China and $1.2 Trillion held by Japan, but still enough to cause a major disruption if Russia were to play tit for tat and start dumping Treasuries to push Interest Rates Higher if the Fed started dumping oil on the market to push oil prices lower.
It’s an action packed news week. Tuesday brings the Consumer Price Index and Housing Starts, on Wednesday Janet Yellen will have her first Fed Meeting and press conference, and on Thursday Claims and Existing Home Sales will be released.
The Empire State Manufacturing Survey, which measures manufacturing in the NY region, came in at 5.61, which was lower than estimates of 6.50, but higher than last month’s weak reading of 4.48. The new orders component showed a slight increase to 3.13 vs. last month’s -0.21. Industrial Production and Capacity Utilization were both reported slightly higher than expectations. Capacity Utilization came in at 78.8%, which was stronger than the 78.6% expected. As we have discussed, Capacity Utilization is an important indicator for general economic health and inflation. When factories have excess capacity, they produce at a discount. But when they start producing near capacity or at tight levels, it can drive prices higher.
The National Association of Home Builders (NAHB) Housing Market Index for March came in at 47, which was a little better than last month’s 46, but still quite a ways below 50. This figure, which is almost in real time, tracks builders’ sentiment. Sales increased one point to 52, while future sales fell 1 point to 53. Traffic did jump 2 points to 33, but this figure is still well below 50. This part of the report is most likely to be affected by weather conditions.
Mortgage Bonds are trading in a narrow range between a strong dual layer of support at the 50 and 100-day Moving Averages and overhead resistance at the 25-day Moving Average. The 10-year Treasury Note Yield is sitting right up against resistance at the 200-day Moving Average. If Stocks end the day higher you will see mortgage rate increase some through the week.
Triangle jobless rate drops to 5.3 percent
The jobless rate in the Triangle has been on a steady decline since December. In a report released on Wednesday by the NC Department of Commerce the North Carolina unemployment rate is at the lowest level since August 2008.
In December, the Triangle added 2,500 jobs and 19,300 jobs were added last year. The majority of job growth in North Carolina is in the Triangle and Charlotte metropolitan areas which accounted for 64,500 jobs last year.
Forecast predict that the Triangle will add about 25,000 to 30,000 jobs in 2014, this would lower the unemployment rate close to 5%.
Michael Walden, an N.C. State University economist said, “It could still be stronger, but I think we’re on a path to see better growth in 2014, primarily fueled by two things: the housing market recovery and household finances in better shape.”
“Despite the recent sell-off in the stock market, Mark Vitner stated, “The economic outlook is better today than it’s been at any other time since the recession. … Over the course of the year, I think we’re going to find out that a lot of the surprises are going to be to the upside for a change.”
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