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Market Snapshot 9/3/2010
September 3rd, 2010 9:10 AM

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Friday, September 03, 2010

Interest rates spiking higher this morning, the stock indexes jumping; both moves huge. The August employment report has nailed the bond and mortgage markets that had already looked very weak this week. Early this morning the 30 yr FNMA Sept coupon is trading below its key 20 day moving average, the first time we have seen that since last April. The 10 yr note yield at 9:00 this morning up 13 more basis points at 2.76%, mortgage prices down 18/32 (.56 bp) from yesterday's closing levels. At 9:30 the DJIA opened +95, the 10 yr -32/32 at 2.74% +11 bp, mtg prices at 9:30 -13/32 (.41 bp) on 30 yr mtgs.



The August unemployment rate at 9.6% was right on, up 0.1% from July; non-farm payrolls declined just 54K against general estimates of -100K, private job payrolls reported up 67K against estimates of +20K. The BLS reported revisions to June and July; the original totals for the two months was a decline of 351K jobs, revised to -229K. While employment remains a serious impediment to economic growth, the surprising improvements in the data released this morning are sending interest rate higher and stock indexes opening strong. The take away on the data is that while the economy is struggling, it isn't going off the cliff.



Some better news on the housing sector yesterday, July pending home sales were up 5.2% while estimates were for a slight decline. Pending home sales, contracts signed but not yet closed. While better, the housing sector remains in depression.



Yesterday afternoon in a surprise announcement the White House announced the President would make a statement at 10:00 this morning. Markets expecting some announcement on tax reductions for small businesses, as this is being delivered he hasn't begun his remarks.



At 10:00 the August ISM services sector report; the estimates for the overall index was a read of 53 frm 54.3, it fell to 51.5 the second lowest index reading this year. The employment component fell to 48.2 frm 50.9, new orders slipped to 52.4 frm 56.7 and prices 60.3 frm 52.7. The weaker data stopped the selling in treasuries and mortgages and took some wind out of the buying in equities. (Any index over 50 is considered expansion, under 50 contraction).



We have been warning for over a week that the interest rate markets were softening, after the employment report today the 10 yr note yield had jumped 20 basis points in rates since the close on Wednesday, mortgage rates on 30s up 7 basis points. Trading over the past two weeks implied investors were becoming less interested in treasuries as safety moves with the rates so low it had changed the risk equation between hiding in treasuries and accepting a little more risk in equities. While rates are increasing it is unlikely they will increase too much more; the worst we can expect for the 10 yr is another 25 basis points higher to test 3.00% and mortgage rates up another 15 basis points on 30s. We continue to expect high levels of trading volatility; we suggest taking advantage of any rallies in the bond market, it is very likely we have seen the lows now for mortgages and treasury rates. While the news today (and this week) was stronger than expected, it was not really great news, but the Treasury market seemed to be priced to a worst case scenario.




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Posted by Anthony J. Hood on September 3rd, 2010 9:10 AMPost a Comment (0)

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Rate Lock Advisory - Wednesday Sep. 1st
September 1st, 2010 12:54 PM
Rate Lock Advisory - Wednesday Sep. 1st



Wednesday's bond market has opened down sharply after this morning's economic data showed surprising strength. The stock markets are heavily influencing bond trading with significant gains. Stocks have had quite a strong reaction to this morning's news, pushing the Dow up over 230 points and the Nasdaq up 57 points. The bond market is currently down 30/32, which will likely push this morning's mortgage rates higher by approximately .250 of a discount point. Strength in bonds late yesterday is helping to prevent a larger increase to this morning's rates.

Today's news came from the Institute for Supply Management (ISM), who released their manufacturing index for August late this morning. They announced a reading of 56.3 that was not only well above forecasts, but also an increase from July's reading. This means that manufacturer sentiment about business conditions was much stronger than analysts had expected. When this happens, bonds tend to move lower and stocks higher as it is a sign of economic strength.

Yesterday afternoon's release of the minutes from the last FOMC meeting didn't reveal any significant surprises, but did indicate that the Fed is considering, or at least willing to invest more funds into mortgage-related securities. That can be considered good news for bonds and mortgage rates since the additional buying should drive mortgage pricing lower. However, it is just a thought at this time and cannot be given much weight until the Fed does decide to pursue that route.

There are two reports scheduled for release tomorrow morning that have the potential to influence rates. The first is the revised 2nd Quarter Productivity numbers, which measures employee productivity in the workplace. Strong levels of productivity allow the economy to expand without inflation concerns. It is expected to show a downward change from the previous estimate of a 0.9% decline. Forecasts are currently calling for a 1.7% drop, meaning productivity was weaker than previously thought. This would be negative news for the bond market and mortgage rates, but this data is not one of the more important reports we see each quarter. Therefore, unless there is a large variance from expectations, this report will likely have little impact on tomorrow's rates.

July's Factory Orders data will also be released tomorrow morning. This report measures manufacturing sector strength and is similar to last week's Durable Goods Orders, but includes orders for both durable and non-durable goods. It is expected to show a 0.3% increase in new orders. A smaller than expected rise would be favorable for bonds, while a large than forecasted increase could lead to higher rates tomorrow morning.

Also worth noting are weekly unemployment figures that will be released by the Labor Department early tomorrow morning. They are expected to say that 475,000 new claims for unemployment benefits were filed last week. Since this data tracks only a single week's worth of claims, it usually takes a fairly significant surprise for mortgage rates to react. This is especially true when monthly figures will be posted the following day, as is the case this week.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

Posted by Anthony J. Hood on September 1st, 2010 12:54 PMPost a Comment (0)

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Mortgage Market 8/26/2010
August 26th, 2010 12:40 PM

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Building Strong, Lasting Relationships; One Client at a Time.

Thursday, August 26, 2010

Weekly jobless claims hit at 8:30 and were better than expected, down 31K compared to the estimates of down 15K. 473K new filings for unemployment isn't good but in this paranoid market environment it did put a bid in stock indexes and turned the treasury markets from early price gains to unchanged at 9:00. Last week new claims were at 500K, in the data this morning that was revised to 504K, Continuing claims fell to 4.456 mil to 4.518 mil. The better claims is nothing to celebrate, at 473K new unemployment claims and no real increase in new job creation the outlook for increased employment remains bleak as the economy struggles along in what will be a very long period of recovery. The likelihood that job growth is on the horizon is wishful but hopeful thinking.



At 9:30 the DJIA opened +33, the 10 yr note -2/32 at 2.55% +1 BP and mortgage prices at 9:30 holding minor gains, +3/32 (.09 bp) frm yesterday's close.



As long as the housing sector is still declining as was evident in this week's July data on existing and new home sales and consumers unwilling to spend the economy will at best muddle along. Almost every measurement of the economy that has hit over the past six weeks has been soft; manufacturing is slowing, consumers are holding back, there is no market of consequence for home purchases, and businesses uncertain how all the actions out of Congress will impact their business (heath care, FinRegs). While the outlook has changed from exuberance over the recovery to one of uncertainty, markets are adjusting to that "new normal" that was so roundly ignored by most analysts. Still don't expect that double dip that seems to surface any day the equity market declines, but it is unlikely economic growth and lower unemployment is on the radar.



Tomorrow's revision of Q2 GDP and Bernanke's comments opening the annual Jackson Hole Conference of economists should limit any significant moves in either the stock or bond markets today. Bernanke will open the conference with what is anticipated to be some additional clarity as to what the Fed is expecting and what the Fed's sketchy plans might be to support the economy. Very low interest rates are going to be with us for at least another year, the Fed has little ammo now other than to keep interest rates low. There is some chatter the Fed will begin to "punish" banks that are stashing huge sums at the Fed instead of using it to stimulate borrowing and investments. Whatever Bernanke has to say tomorrow it will likely be couched with Fedspeak and clouded with unrealistic positives about economic improvement----the Fed can't openly say what most of its officials are now worrying about.



The MBA said this morning that 13.97% of all mortgage loans are delinquent or in foreclosure; a huge number but a little better than last month. No silk purses out of that pigs ear.



At 1:00 this afternoon Treasury will auction $29B of 7 yr notes to complete this week's borrowing to fund the growing federal deficit. Yesterday the 5 yr note auction was not the best, it came with a higher yield than what traders were expecting yesterday morning but overall still not bad. The rate the 5 yr got was about 2 basis points higher than trading in the WI market. Today's 7 yr should do better as investors are moving farther out the curve on strong belief that recovery will be moderate at best, that the Fed will have to maintain low rates at least through 2011, and deflation might be brewing. Tuesday's 2 yr auction and yesterday's 5 yr auction are both underwater based on what the yields were at each auction, but only slightly.



We are not expecting much change in stock indexes or the rate markets today ahead of tomorrow's GDP report and Bernanke's comments from Jackson Hole. The rate market remains bullish, the equity market bearish. Looking for the DJIA to decline to 9000 before the end of the year and long term rates to decline another 25 basis points on the 10 yr note but mortgage rates down another 15 basis points frm present levels.




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Posted by Anthony J. Hood on August 26th, 2010 12:40 PMPost a Comment (0)

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Mortgage Rate Update
August 24th, 2010 10:53 AM
Tuesday's bond market has opened in positive territory after news of a large drop in home sales. The stock markets are reacting negatively to the news with the Dow down 81 points and the Nasdaq down 22 points. The bond market is currently up 18/32, which should improve this morning's mortgage rates by approximately .250 of a discount point.

The National Association of Realtors announced late this morning that home resales fell to a 15-year low last month. The 27.2% decline in sales of existing homes was well short of expectations and indicates that the housing sector needs more stimulus to stabilize. Whether or not Congress will allow it remains to be seen, but it is apparent that the housing sector is weak. That is good news for the bond market and mortgage rates because a soft housing market makes a broader economic recovery much less likely.

Tomorrow brings us the release of two relevant economic reports. The Commerce Department will post July's Durable Goods Orders early tomorrow morning, giving us an important measure of manufacturing sector strength. This data tracks orders at U.S. factories for big-ticket items, or products that are expected to last three or more years. A much weaker reading than the expected 3.0% rise that is expected would indicate that the manufacturing sector is not as strong as thought. This would be good news for bonds and should lead to lower mortgage rates tomorrow morning.

Also scheduled for release tomorrow is July's New Home Sales data. This report is the least important release of the week. It will give us another indication of housing sector strength and mortgage credit demand, but only tracks approximately 15% of all home sales. It usually doesn't have a major impact on bond prices or mortgage rates unless it varies greatly from forecasts.

The first of this week's Treasury auctions that may affect bond trading and mortgage rates is tomorrow. 5-year Notes will be sold tomorrow and 7-year Note will be auctioned Thursday. Results of the sales will be posted 1:00 PM ET each day. If investor interest is strong in the auctions, we can expect the broader bond market to rally and mortgage rates to move lower. However, lackluster demand could lead to bond selling and higher mortgage rates tomrorow and Thursday afternoons.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers

Posted by Anthony J. Hood on August 24th, 2010 10:53 AMPost a Comment (0)

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Market Update 8/19/2010
August 19th, 2010 9:40 AM

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Anthony Hood

Equity Investment Capital

Office: 949-891-0067

Email: tony@equityinvestmentcapital.com

website: www.equityinvestmentcapital.com

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Building Strong, Lasting Relationships; One Client at a Time.

Thursday, August 19, 2010

Treasuries and mortgages opened weak again this morning prior to weekly jobless claims at 8:30. Weekly unemployment claims were expected to have declined by 4K to 6K frm last week; as reported claims were up again to 500K filings for unemployment last week, the highest weekly filings since Nov 14th 2009. Last week's claims were revised higher, from 484K to 488K. Unemployment claims have been climbing for the past month as economic optimists remain convinced the economy is recovering. Recovery! What recovery? The economy needs jobs but jobs are being lost; the claims this morning have been met with the usual smoke that the data is skewed because of summer lay-offs. Continuing unemployment claims declined a little, to 4.478 mil frm 4.49 mil last week as more are losing entitlements. The 4 week moving average of claims increased to 4.825 mil frm 4.745 mil. The market reaction was not what many would have expected; the 10 yr note didn't rally, the key stock indexes didn't sell off but lost early gains. By 9:00 this morning the 10 yr note traded down 7/32 at 2.66% +2 BP and mortgage prices were 2/32 weaker (.06 bp) frm yesterday's close.



At 9:30 the DJIA opened -35, the 10 yr note at 9:30 -3/32 2.65% +0.5% and mortgage prices holding key technical levels +2/32 (.06 bp).



At 10:00, a few minutes ago, the Philadelphia Fed released its business index; expected to have increased from 5.1 to 7.0, took a huge hit falling to -7.7; new orders component fell to -7.1 frm -4.3, employment fell to -2.7 frm +4.0 and prices pd fell to 11.8 frm 13.1. The report was a huge surprise to those remaining economic bulls and sent the stock market down, from -77 prior to the report to -137 in two minutes. Any of the index readings under zero is contraction. The data today should send rates lower and stock indexes lower. We continue to warn that there is no recovery, now after manufacturing has run its course of cost cutting, inventory building and job cuts there isn't anything more that can be expected.



Also at 10:00 July leading economic indicators expected to have increased 0.1% was right on at +0.1%, it held little interest however with the Philly fed taking all the attention.



More Treasury borrowing next week, at 11:00 Treasury will announce the specifics for next week's bi-weekly borrowing to fund the deficit. 2 yr, 5 yr and 7 yr notes up; last month the total of the three auctions was $104B, should be the same next week.



Later today the Congressional Budget Office will release recent data on the budget deficit with its estimate for this year's deficit. Estimates are for the US 2010 fiscal deficit at $1.3T to 1.4T. The Obama Administration and the late days of the Bush Administration along with Congress panicked when the sub prime meltdown occurred and spread money around like fertilizer to save the banks and Wall Street firms that were at the epicenter of the causes that broke the economic back of the US, setting off massive firings and a collapse of the housing industry that is still in deep depression. The perfect storm; politicians saving their friends in NY, passing a health care bill in the midst of the crisis that has and will continue to hamper any recovery, and made only feeble attempts to create jobs.



Breathing a sigh of relief after the 10:00 data rallied the mortgage prices; as note previously, the 4.0 FNMA coupon has not traded below its 20 day average since mid-April; this morning on the open it traded slightly below it but the continued weak economic data has sent mortgage prices up and back above the 20 day, saving the market's bullish trend. By 10:10 mortgage prices jumped 8/32 (.25 bp) frm 9:30 levels.




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Posted by Anthony J. Hood on August 19th, 2010 9:40 AMPost a Comment (0)

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