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Stocks are mixed and Mortgage Bonds are trading slightly lower so far this morning
Stocks are mixed and Mortgage Bonds are trading slightly lower so far this morning. The ADP released their Employment report for November, showing that there were 208k jobs created. This was lower than expectations of 225k, but still a decent number. This did mark the 8th month in a row of 200k+ job creations. Additionally, last month’s figure of 230k was revised higher to 233k. We will see how Friday’s more important BLS Jobs Report fares. But given that the two reports have correlated pretty well over the last few months (as seen below), with the BLS usually coming in higher, we could expect a report on Friday over 200k. More on that in our Jobs Report Strategy tomorrow.
Earlier this morning, the Mortgage Bankers Association reported that Mortgage Applications decreased by 7.3%. This was led by Refinances, which were down 13%. Refinances accounted for 60% of total applications. Purchases, on the other hand, were up by 3% and are now down only 4% on a year over year basis. This is one of the narrowest margins we have seen in a while. Interest rates decreased from 4.15% to 4.08% to the lowest level since May 2013, with 0.28 points paid.
Later this afternoon at 2:00pm ET the Fed’s Beige Book will be released.
Mortgage Bonds are trading in the middle of a range between support at the 25-day Moving Average and overhead resistance at 104.29. The 10-year Treasury Note Yield has moved higher after breaking 2.22% and is now just below the 25-day Moving Average. This level should act as overhead resistance and keep a lid on yields. Meaning – rates should hold steady and could improve.
Current Rate Position: Continue Floating
Current Rate Position: Continue Floating
Stocks are lower and Mortgage Bonds are higher so far this morning. It’s another quiet news day, but the National Federation of Independent Business (NFIB) did report that optimism among small business owners decreased 1.6 points in June from 96.6 to 95.0. This was much lower than expectations, which were looking for 97.0. Out of the 10 components surveyed, the only two that were higher were plans to increase employment and current job openings. The biggest component that contributed to the pullback this month was expect economy to improve, which fell 10 points to -10.
CoreLogic released their National Foreclosure Report for May, and it showed that foreclosure inventory is down 37% from a year ago. Only 1.7% of all homes with a mortgage are in foreclosure compared to 2.6% last year. This is why appreciation is so important, it fixes everything. Additionally, only 4.4% of mortgages are now seriously delinquent for the first time in almost 6 years. Fewer mortgages in delinquency means that less are headed for foreclosure down the road.
Taking a look tomorrow the news calendar does heat up. One thing we will be looking at is the ECB rate decision. Their economy is struggling but the Euro is so high that it makes it difficult for exporters. There is a big call for the ECB to do something but they can’t because they don’t have a European Bond, they have all these different countries, so it’s a lot more challenging. They may take a page out of China’s book and make purchases of US Treasuries to help their currency weaken against the Dollar. That would be welcome news to us here because if they choose that path, it will help keep interest rates at better levels. We will also have a 10-year Treasury Note Auction at 1:00pm ET and the release of the Fed Minutes at 2:00pm ET.
Looking at the charts, Bonds are in a favorable position. The 10-year Treasury Note Yield formed a Bearish Engulfing Pattern Yesterday, which portends lower yields ahead. We are seeing Yields follow through to the downside today, and they are now battling support at their 25 and 50-day Moving Averages. Mortgage Bonds are nicely higher today after the Bullish Piercing Pattern formed.
Stocks are a bit lower and Mortgage Bonds are a bit higher so far this morning
Update: Stocks are a bit lower and Bonds are a bit higher after some mixed economic data
Stocks are a bit lower and Bonds are a bit higher after some mixed economic data. ADP released their Employment Report for April, and the report showed that there were 220k jobs created. This was stronger than the 210k expected, and the best ADP number since November. Adding to the strength of the report was a significant revision higher to last month’s figure from 191k to 209k. This report sets up for a strong Bureau of Labor Statistics (BLS) number on Friday. But what types of jobs are being created? As we identified last month, most of the BLS Jobs created were either part time, or low paying. The market will react initially to the headline number, so we can expect Stocks to rally and Mortgage Bonds to fall if the BLS number comes out stronger on Friday.
With stronger jobs growth, we would expect GDP to be strong as well. This may be further evidence that the types of jobs this country needs are not being created. The Advance reading for the 1stquarter GDP came to a standstill, raising only 0.1%. This was a terrible number and much weaker than the 1.1% expected. Weather was blamed for the big miss in this number, but we feel there is some underlying weakness.
The Employment Cost Index, which is a good measure of wage based inflation, was up only 0.3%. This was about half of what was expected. When we connect the dots, we see a lot of job growth but no wage pressured inflation. So maybe the pay is lower and again shows that we are not getting the full time, higher paying jobs.
Earlier this morning, The Mortgage Bankers Association released their weekly Mortgage Application data for the week ending April 25th, and the index was reported down 5.9%. The Purchase Index, which fell by 3% last week, dropped another 4%. Purchases are now down 21% from this time last year. Interest rates remained unchanged at 4.49% with 0.38 points paid. Refinances continued their slide and fell by 7%. The decline this week cannot be blamed on any holidays, and shows some serious weakness in applications.
Later this afternoon at 2:00pm ET we will get the results from the Fed’s 2 day meeting. we fully expect the Fed to continue to reduce QE3 by another $10B this afternoon, bringing the total reductions to $40B off of the $85B during QE3. The reduction will split evenly between MBS and Treasuries, taking the Fed’s monthly purchases from $55B to $45B, which will be $25B in Treasuries and $20B in MBS.
Update: Stocks, Bonds, Jobless Claims and Pending Home Sales
Stocks and Bonds are both a bit lower so far this morning. Initial Jobless Claims were released for the week ending March 22th, and Claims dropped 10k to 311k from last week’s slightly upwardly revised figure of 321k. This was stronger than estimates of 323k, and the lowest reading since December. Claims have been consistently trending lower, which is encouraging for the economy.
Final GDP for Q4 of last year was released at 2.6%. This was stronger than the preliminary reading of 2.4% last month, but still lower than estimates of 2.7%. This number is still a little weak, but this this ready does start to get a little old because we are almost done with the first quarter, and this is for the fourth quarter of 2013.
Pending Home Sales for February were reported this morning. Pending Home Sales measures signed contracts on existing homes, so while these contracts will have fallout, the data is more timely because it measures activity in the month of February. The report was released at 93.9, down 0.8%. Last month’s initial reading of 95 was revised slightly lower to 94.7. Pending Home Sales are now down 10.5% from this time last year. The areas that suffered the most were the Northeast and South, where weather was a big issue in February. Tight inventories also did not help the number.
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.
Stock and Mortgage Bonds Update
Stocks are a bit higher and Mortgage Bonds are trading near unchanged levels so far this morning. The Producer Price Index (PPI) was released, and the headline number was down 0.1%. This was lower than the 0.2% expected. Year over year headline PPI is up 0.9%, which was a significant drop of 0.3% from last month. The Core PPI, which strips out food and energy, was down 0.2%. This was also lower than the 0.1% expected. Year over year, Core PPI is up 1.1%, which is a decline of 0.1% from last month. Inflation on the wholesale level is still nonexistent and heading in the wrong direction.
After a big day yesterday, Mortgage Bonds are now trading in a tight range between support at the 25-day Moving Average and overhead resistance at 104.69. Mortgage Bonds tested the aforementioned resistance level earlier today and were pushed lower. The 10-year Treasury Note Yield has now been pushed beneath the 200-day Moving Average. On Wednesday we had said in our update that we thought Stocks looked vulnerable and that Bonds were setting the stage for an improved rally. We are up over 70bp from then, and up 46bp from the release of the Jobs Report last week. We can begin the day floating to give Mortgage Bonds a chance to break above resistance.
Stocks, Mortgage Bonds and Jobless Claims
Stocks are higher and Mortgage Bonds are lower so far this morning. Initial Jobless Claims were released for the week ending March 8th, and Claims fell 9k to 315k from last week’s slightly upwardly revised figure. This was much stronger than estimates of 330k, and the lowest reading in over 3 months. Claims have been trending lower which is encouraging for the economy. It remains to be seen whether this translates to real job growth.
Retail Sales were reported this morning and the headline number was released up 0.3%, which was higher than the 0.2% expected. When stripping out Autos and Gas, Sales were reported up 0.3%, which was also stronger than expectations. This was the first positive read we have seen in 3 months. Although this month’s release was higher, last month’s weak figures were revised even lower from -0.4% to -0.6%. We have to remember that after a decline, you need an even larger snap back to regain the ground lost. Here is an example: If an indicator fell by 25%, it would need at 33% gain to get back to even. Or if an indicator lost 33%, it would need a 50% gain to get back to even. So when we see these economic reports decreasing one week and then bouncing back the next, we have to remember that a larger bounce back is needed to regain all of the losses.
Later today there will be a $13B 30-year Treasury Bond Auction, which is always a potential market mover. Yesterday’s 10-year Treasury Note Auction was graded an “A” and helped push Mortgage Bonds higher. Result was better mortgage rates in the afternoon and this morning.
Mortgage Bonds are trading in a very tight range between support at the 200-day Moving Average and overhead resistance at the 50-day Moving Average. Two days ago there was a “Golden Cross”, which is a pattern formed when the 50-day Moving Average crosses upwards above the 200-day Moving Average. This is a bullish signal and often signifies better pricing ahead. The 10-year Treasury Note Yield was trying to “hold the line” and remain below the 50-day Moving Average, which is has. We can begin the day carefully floating, but should Mortgage Bonds break beneath support, we may have to switch our bias.
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