The Commerce Department reported earlier this morning that sales of new homes rose in September by 6.6% to an annual rate of 307,000 as compared to the prior month. Even with this month's gain, the pace of sales is barely above its 47-year low. Slow job growth, tight credit, and low consumer confidence remain the primary impediments to improvement in the housing sector. Nothing new here - so mortgage investors shrugged off the report.
In a separate release, the Mortgage Bankers of America reported their national mortgage application index, a combined view of the demand for both refinance and purchase money mortgages, climbed 3.2% higher during the week ended October 22nd. Purchase applications rose 3.9% following two consecutive weekly declines while refinance demand rose 3.0% after falling 11.2% the previous week. Refinance requests continue to represent four out of every five loan applications currently in process on a national basis.
Uncle Sam will be conducting an auction of $35 billion worth of 5-year notes this afternoon. The broad consensus among analysts is that this offering will be very well bid -- since both by rhetoric and by action the Fed is telegraphing their intention to maintain their benchmark interest rates at exceptionally low levels for an extended period of time.
Wednesday, October 27, 2010
Tuesday, October 26, 2010
Tuesday, October 26, 2010
Consumer Confidence improved slightly in October but remained at its second lowest level since February. The index rose to a reading of 50.2 from September's 48.6 mark. Consumer's buying plans remain weak, and only 9.1% of consumers expect their incomes to rise in the next six months.
Concerns about lack of job growth, slipping home values, and still tight credit conditions at the consumer level are the most obvious drivers of weak consumer confidence.
Until/unless those three primary elements collectively show sustained improvement over a multi-month period the prospects for accelerating economic growth remain small - a condition supportive of the prospects for steady to perhaps fractionally lower mortgage interest rates.
Uncle Sam will be conducting an auction of $35 billion worth of 2-year notes this afternoon. The broad consensus among analysts is that this offering will be very well bid -- since both by rhetoric and by action the Fed is telegraphing their intention to maintain their benchmark interest rates at exceptionally low levels for an extended period of time.
Concerns about lack of job growth, slipping home values, and still tight credit conditions at the consumer level are the most obvious drivers of weak consumer confidence.
Until/unless those three primary elements collectively show sustained improvement over a multi-month period the prospects for accelerating economic growth remain small - a condition supportive of the prospects for steady to perhaps fractionally lower mortgage interest rates.
Uncle Sam will be conducting an auction of $35 billion worth of 2-year notes this afternoon. The broad consensus among analysts is that this offering will be very well bid -- since both by rhetoric and by action the Fed is telegraphing their intention to maintain their benchmark interest rates at exceptionally low levels for an extended period of time.
Monday, October 25, 2010
Monday, October 25, 2010
The National Association of Realtors reported this morning that September Existing Home Sales posted a stronger than expected month-over-month increase of 10.0% -- a value well above most economists' projections calling for a 4.0% improvement. That is the good news. The bad news is that even with the September improvement, we're still at remarkably depressed levels. Existing home sales are almost 20% below year-ago-levels. This data series will probably continue to be supportive of steady to fractionally lower mortgage interest rates until the fundamental driver of housing demand -- job growth - can generate sustained upward momentum - something most analysts do not expect to occur until mid-2011 at the earliest.
Credit market participants are bracing for a big four-part Treasury auction that kicks off this week. On the auction block today will be a $10 billion stack of 5-year inflation-indexed securities that will be followed by $35 billion of 2-year notes tomorrow, $35 billion of 5-year notes on Wednesday and will wrap-up with the sale of $29 billion of 7-year notes on Thursday. A consensus is building around the idea that the Fed will focus a large part of their "QE2" buying appetite on Treasury obligations with 5-year to 10-year maturities - an outlook that will likely prove very supportive for the majority of the offerings on the blocks for sale this week. If so, Uncle Sam's borrowing spree this week will not likely take much, if any toll on the current level of mortgage interest rates.
Credit market participants are bracing for a big four-part Treasury auction that kicks off this week. On the auction block today will be a $10 billion stack of 5-year inflation-indexed securities that will be followed by $35 billion of 2-year notes tomorrow, $35 billion of 5-year notes on Wednesday and will wrap-up with the sale of $29 billion of 7-year notes on Thursday. A consensus is building around the idea that the Fed will focus a large part of their "QE2" buying appetite on Treasury obligations with 5-year to 10-year maturities - an outlook that will likely prove very supportive for the majority of the offerings on the blocks for sale this week. If so, Uncle Sam's borrowing spree this week will not likely take much, if any toll on the current level of mortgage interest rates.
Thursday, October 21, 2010
Thursday, October 21, 2010
Trading activity in the mortgage market is light again this morning. Investors have little to guide their rate setting decisions so the majority of them appear content to move to the sidelines as they await next week's big $109 billion four-part Treasury auction, a 2-day Federal Open Market Committee meeting, the results of the midterm elections and the release of the October nonfarm payroll report. Under current market conditions look for trading action in the mortgage market to be more sideways rather than directional for the balance of the week.
The Labor Department reported earlier this morning that initial claims for state unemployment benefits fell 23,000 during the week ended October 16th. The prior week's figures were revised up by 13,000, to the highest level since late August. Those workers who have used up their traditional benefits and are now collecting emergency and extended government payments increased by roughly 279,000 to 5.07 million during the latest reporting period. Most investors see this report as making it all but certain the Fed will launch another round of quantitative easing at the conclusion of their meeting on Wednesday, November 3rd. This expectation is already priced into the mortgage market so when the announcement is formally made - the reaction as reflected on investors' rate sheets will likely be muted.
There are a number of reasons to believe "the Dow and the Nasdaq will likely put in a cycle high this week - probably on Wednesday or Thursday." If that assessment proves accurate, the migration of capital leaving riskier assets like stocks for the safety of the Treasury and mortgage-backed security markets should prove supportive of the prospects for steady to perhaps fractionally lower mortgage interest rates this week.
The Labor Department reported earlier this morning that initial claims for state unemployment benefits fell 23,000 during the week ended October 16th. The prior week's figures were revised up by 13,000, to the highest level since late August. Those workers who have used up their traditional benefits and are now collecting emergency and extended government payments increased by roughly 279,000 to 5.07 million during the latest reporting period. Most investors see this report as making it all but certain the Fed will launch another round of quantitative easing at the conclusion of their meeting on Wednesday, November 3rd. This expectation is already priced into the mortgage market so when the announcement is formally made - the reaction as reflected on investors' rate sheets will likely be muted.
There are a number of reasons to believe "the Dow and the Nasdaq will likely put in a cycle high this week - probably on Wednesday or Thursday." If that assessment proves accurate, the migration of capital leaving riskier assets like stocks for the safety of the Treasury and mortgage-backed security markets should prove supportive of the prospects for steady to perhaps fractionally lower mortgage interest rates this week.
Wednesday, October 20, 2010
Wednesday, October 20, 2010
Trading activity is light this morning in the mortgage market. Investors have little to guide their rate setting decisions.
The Mortgage Bankers of America said its seasonally adjusted index of mortgage applications, a value which includes both purchase and refinance loans, slumped 10.5% during the week ended October 15th. Demand for home refinancing fell for the sixth time in seven weeks - dropping by 11.2%. Purchase application requests slid 6.7% lower.
While it is true that interest rates on 15- and 30-year fixed-rate mortgages rose for the first time in six weeks during the survey period - they are still within shouting distance of their record all-time lows.
The Fed will release their "Beige Book" this afternoon at 2:00 p.m. ET. This report, named for the color of its cover, is a compilation of economic reports from all 12 Federal Reserve districts. The tone of these regional surveys will generally be gloomy - especially in terms of the employment picture. The chance any of the data contained in the "Beige Book" will surprise mortgage investors is small. This report will not likely exert any noticeable influence on the current trend trajectory of mortgage interest rates.
The Mortgage Bankers of America said its seasonally adjusted index of mortgage applications, a value which includes both purchase and refinance loans, slumped 10.5% during the week ended October 15th. Demand for home refinancing fell for the sixth time in seven weeks - dropping by 11.2%. Purchase application requests slid 6.7% lower.
While it is true that interest rates on 15- and 30-year fixed-rate mortgages rose for the first time in six weeks during the survey period - they are still within shouting distance of their record all-time lows.
The Fed will release their "Beige Book" this afternoon at 2:00 p.m. ET. This report, named for the color of its cover, is a compilation of economic reports from all 12 Federal Reserve districts. The tone of these regional surveys will generally be gloomy - especially in terms of the employment picture. The chance any of the data contained in the "Beige Book" will surprise mortgage investors is small. This report will not likely exert any noticeable influence on the current trend trajectory of mortgage interest rates.
Tuesday, October 19, 2010
Tuesday, October 19, 2010
The Commerce Department reported earlier this morning that housing starts unexpectedly rose in September to a five-month high, but permits for future home construction fell 5.6% -- driven by a sharp decline in permit filings for multi-family construction. This data had little impact on mortgage investors expectations the Fed will launch another round of economic stimulus at the conclusion of their upcoming two-day Open Market Committee meeting on November 2nd and 3rd.
Monday, October 18, 2010
Monday, October 18, 2010
After booming for more than a year, the manufacturing sector of the economy is starting to show signs of cooling off from its red-hot growth pace. Industrial production fell 0.2% in September - marking its biggest decline since June 2009.
Capacity Utilization, a measure of how much of a factory's total production quotient is in use, decreased to 74.7% last month from 74.8% in August. By comparison, the gauge averaged 80% over the past 20-years. It is abundantly clear to mortgage investors that capacity utilization remains well below levels where inflation inducting production bottlenecks might be expected to occur.
News of soft production growth together with a benign inflation measure from the manufacturing sector are supporting steady to slightly lower mortgage interest rates today.
There are a number of reasons to believe the Dow and the Nasdaq will likely put in a cycle high this week - probably on Wednesday or Thursday. If the assessment proves accurate, the migration of capital leaving riskier assets like stocks for the safety of the Treasury and mortgage-backed security markets should also prove supportive of the prospects for steady to perhaps fractionally lower mortgage interest rates this week.
Capacity Utilization, a measure of how much of a factory's total production quotient is in use, decreased to 74.7% last month from 74.8% in August. By comparison, the gauge averaged 80% over the past 20-years. It is abundantly clear to mortgage investors that capacity utilization remains well below levels where inflation inducting production bottlenecks might be expected to occur.
News of soft production growth together with a benign inflation measure from the manufacturing sector are supporting steady to slightly lower mortgage interest rates today.
There are a number of reasons to believe the Dow and the Nasdaq will likely put in a cycle high this week - probably on Wednesday or Thursday. If the assessment proves accurate, the migration of capital leaving riskier assets like stocks for the safety of the Treasury and mortgage-backed security markets should also prove supportive of the prospects for steady to perhaps fractionally lower mortgage interest rates this week.
Friday, October 15, 2010
Friday, October 15, 2010
The Commerce Department reported this morning that retail sales rose a stronger-than-expected 0.6% in September, lifted by big ticket items like autos, electronics and appliances. The August figure was revised higher as well to show a gain of 0.7% versus the 0.4% gain originally reported. Excluding autos, September sales were up 0.4%, essentially matching the consensus estimate. Consumer spending accounts for roughly 70% of the nation's economic activity, so an improved picture for overall third-quarter performance will tend to limit the ability of mortgage interest rates to make a notable move to lower levels as investors anticipate a rising demand for capital to finance the prospect of budding new business opportunities.
In a separate report the Labor Department said their September Consumer Price Index showed inflation rose at a slower-than-expected pace last month. The overall consumer price index rose just 0.1% while the core rate, a value which excludes the more volatile food and energy price components, remained unchanged for the second straight month.
This low inflation environment is bothersome for Fed Chairman Bernanke and a majority of his fellow central bankers. Mr. Bernanke, speaking at a conference sponsored by the Boston Federal Reserve Bank this morning, said high unemployment and low inflation point to a need for further easing of monetary policy. His comments removed any remaining doubt among credit market participants that another round of economic stimulus from the Fed is on the way. The Fed is broadly anticipated to formally announce the deployment of "QE2" at the conclusion of the two-day Open Market Committee meeting on November 3rd. The dollar size of the Fed's commitment is still vague and many analysts, including the Fed Chairman himself, question the likely effectiveness of this new program in regard to making a dent in the nation's stubbornly high jobless rate.
The one thing nobody doubts is the Fed's intent to do as much as is required to drive the inflation rate at both the producer and consumer level higher - viewing the achievement of that objective as tangible proof the gears of economic growth are once again beginning to turn. While there are those who question how much "bang-for-the-buck" in terms of economic growth the Fed will actually recognize for their effort - there are few who doubt rising inflation pressures will push mortgage interest rates higher.
Looking ahead to next week the economic calendar is populated with second-tier reports ranging from Monday's September Industrial Production and Capacity Utilization figures, Tuesday's September Housing Starts and Building Permits stats, and Thursday's Initial Jobless Claims data. With so little to "chew on" - it is likely the trend trajectory of mortgage interest rates will be largely governed by trading action in the stock markets. Higher stock prices will tend to put upward pressure on mortgage rates while lower stock prices will probably foster steady to perhaps fractionally lower rates.
In a separate report the Labor Department said their September Consumer Price Index showed inflation rose at a slower-than-expected pace last month. The overall consumer price index rose just 0.1% while the core rate, a value which excludes the more volatile food and energy price components, remained unchanged for the second straight month.
This low inflation environment is bothersome for Fed Chairman Bernanke and a majority of his fellow central bankers. Mr. Bernanke, speaking at a conference sponsored by the Boston Federal Reserve Bank this morning, said high unemployment and low inflation point to a need for further easing of monetary policy. His comments removed any remaining doubt among credit market participants that another round of economic stimulus from the Fed is on the way. The Fed is broadly anticipated to formally announce the deployment of "QE2" at the conclusion of the two-day Open Market Committee meeting on November 3rd. The dollar size of the Fed's commitment is still vague and many analysts, including the Fed Chairman himself, question the likely effectiveness of this new program in regard to making a dent in the nation's stubbornly high jobless rate.
The one thing nobody doubts is the Fed's intent to do as much as is required to drive the inflation rate at both the producer and consumer level higher - viewing the achievement of that objective as tangible proof the gears of economic growth are once again beginning to turn. While there are those who question how much "bang-for-the-buck" in terms of economic growth the Fed will actually recognize for their effort - there are few who doubt rising inflation pressures will push mortgage interest rates higher.
Looking ahead to next week the economic calendar is populated with second-tier reports ranging from Monday's September Industrial Production and Capacity Utilization figures, Tuesday's September Housing Starts and Building Permits stats, and Thursday's Initial Jobless Claims data. With so little to "chew on" - it is likely the trend trajectory of mortgage interest rates will be largely governed by trading action in the stock markets. Higher stock prices will tend to put upward pressure on mortgage rates while lower stock prices will probably foster steady to perhaps fractionally lower rates.
Thursday, October 14, 2010
Thursday, October 14, 2010
New first-time claims for jobless benefits filed during the week ended October 9th were higher than expected -- and added another degree of certainty to investors' presumption that Fed Chairman Bernanke and his fellow central bankers will vote by November 3rd to pump significantly more money into the economy.
The Labor Department reported earlier this morning that initial weekly jobless claims rose by 13,000 to 462,000 during the latest survey period. Until/unless the total number of initial jobless claims falls to 400,000 or less on a week-over-week basis -- this data series will tend to support steady to perhaps fractionally lower mortgage interest rates.
The Labor Department also reported this morning that the headline September Produce Price Index doubled expectations, rising 0.4% during the month. The so called "core" producer price index, a component of the broader report that excludes the more volatile food and energy costs, rose a modest 0.1%. On a year-over-year basis inflation at the gate of the nation's farms and factories is running slightly hotter than most analysts had anticipated.
We will find out tomorrow morning whether wholesalers of goods and services have been able to generate enough pricing power to push through their rising costs to consumers - or whether these businesses are continuing to absorb the price increases themselves. The Labor Department will release the September Consumer Price Index figures at 8:30 a.m. ET.
Uncle Sam will wrap up the last of his three-scheduled debt auctions for this week with the sale of $13 billion worth of 30-year bonds this afternoon. Tuesday's three-year note sale and yesterday's ten-year note sale drew half-hearted bidding from market participants - and today's offering won't likely break the string. The auction concludes at 1:00 p.m. ET.
As long as this debt offering is not a complete bust with respect to bidding activity -- there is a chance we may see a modest post-auction "relief rally" develop in the government debt market. If so, look for a post-auction "relief rally" to limit or perhaps completely reverse this morning's light round of selling pressure in the mortgage market.
The Labor Department reported earlier this morning that initial weekly jobless claims rose by 13,000 to 462,000 during the latest survey period. Until/unless the total number of initial jobless claims falls to 400,000 or less on a week-over-week basis -- this data series will tend to support steady to perhaps fractionally lower mortgage interest rates.
The Labor Department also reported this morning that the headline September Produce Price Index doubled expectations, rising 0.4% during the month. The so called "core" producer price index, a component of the broader report that excludes the more volatile food and energy costs, rose a modest 0.1%. On a year-over-year basis inflation at the gate of the nation's farms and factories is running slightly hotter than most analysts had anticipated.
We will find out tomorrow morning whether wholesalers of goods and services have been able to generate enough pricing power to push through their rising costs to consumers - or whether these businesses are continuing to absorb the price increases themselves. The Labor Department will release the September Consumer Price Index figures at 8:30 a.m. ET.
Uncle Sam will wrap up the last of his three-scheduled debt auctions for this week with the sale of $13 billion worth of 30-year bonds this afternoon. Tuesday's three-year note sale and yesterday's ten-year note sale drew half-hearted bidding from market participants - and today's offering won't likely break the string. The auction concludes at 1:00 p.m. ET.
As long as this debt offering is not a complete bust with respect to bidding activity -- there is a chance we may see a modest post-auction "relief rally" develop in the government debt market. If so, look for a post-auction "relief rally" to limit or perhaps completely reverse this morning's light round of selling pressure in the mortgage market.
Wednesday, October 13, 2010
Wednesday, October 13, 2010
Just because yesterday's 3-year note auction was a bust - it does not mean today's $21 billion sale of 10-year notes will be poorly bid as well. Right now the yield of the 10-year note is hovering above 2.45% -- the center-point of its multi-day trading range. The probabilities are high investors will view the current yield especially attractive as speculation heats up regarding another round of aggressive buying by the Fed before the year is out.
If, as most market participants expect, the Fed does launch their so called "QE2" financial stimulus program at the conclusion of their next scheduled meeting on November 3rd - the "sweet spot" for the Fed's buying appetite will probably be found among Treasury debt obligations with maturities between five to 10 years - a expectation that will not likely be lost on the bidders at today's auction. Uncle Sam's 10-year note auction will conclude at 1:00 p.m. ET.
As a side bar to the "QE2" discussion - it is worth noting that the Fed is not expected to revisit their direct mortgage-backed security purchase program this year - but if the economy does not pick-up by mid-2011 - it would not be particularly surprising to the see the Fed start writing checks for the direct purchase of mortgage-backed securities as an additional part of the "QE2" stimulus initiative.
Earlier today the Mortgage Bankers of America released their mortgage application survey data for the week ended October 8th. According to the MBA, mortgage applications for home refinancing rose for the first time in six weeks, with demand jumping to its highest level since August as eligible homeowners scrambled to avail themselves of record low interest rates. Refinance requests continue to represent four out of every five loans in the national mortgage pipeline. The tighter FHA mortgage requirements which took effect on October 4th no doubt took a toll on purchase activity. Until/unless these super-tight credit and appraisal standards are relaxed a little -- it will be difficult for the industry to see much improvement in the loan production mix.
The MBA's seasonally adjusted index of all mortgage applications, a composite of both purchase and refinance loan requests, increased 14.6% last week, with total volume surging to its highest mark since May 2009. Refinance applications were up 21% while purchase activity slumped by 8.5%. 30-year fixed-rate mortgages, excluding fees, averaged 4.21% -- their lowest level since the MBA began keeping records in 1990.
If, as most market participants expect, the Fed does launch their so called "QE2" financial stimulus program at the conclusion of their next scheduled meeting on November 3rd - the "sweet spot" for the Fed's buying appetite will probably be found among Treasury debt obligations with maturities between five to 10 years - a expectation that will not likely be lost on the bidders at today's auction. Uncle Sam's 10-year note auction will conclude at 1:00 p.m. ET.
As a side bar to the "QE2" discussion - it is worth noting that the Fed is not expected to revisit their direct mortgage-backed security purchase program this year - but if the economy does not pick-up by mid-2011 - it would not be particularly surprising to the see the Fed start writing checks for the direct purchase of mortgage-backed securities as an additional part of the "QE2" stimulus initiative.
Earlier today the Mortgage Bankers of America released their mortgage application survey data for the week ended October 8th. According to the MBA, mortgage applications for home refinancing rose for the first time in six weeks, with demand jumping to its highest level since August as eligible homeowners scrambled to avail themselves of record low interest rates. Refinance requests continue to represent four out of every five loans in the national mortgage pipeline. The tighter FHA mortgage requirements which took effect on October 4th no doubt took a toll on purchase activity. Until/unless these super-tight credit and appraisal standards are relaxed a little -- it will be difficult for the industry to see much improvement in the loan production mix.
The MBA's seasonally adjusted index of all mortgage applications, a composite of both purchase and refinance loan requests, increased 14.6% last week, with total volume surging to its highest mark since May 2009. Refinance applications were up 21% while purchase activity slumped by 8.5%. 30-year fixed-rate mortgages, excluding fees, averaged 4.21% -- their lowest level since the MBA began keeping records in 1990.
Tuesday, October 12, 2010
Tuesday, October 12, 2010
The two strongest influences on the direction of mortgage interest rates today will be investor reaction to the text and tone of the minutes from the Federal Open Market Committee meeting held on September 21st - and the results of the Treasury's 3-year note auction. At 1:00 p.m. ET the Treasury Department will drop the gavel on the sale of $32 billion worth of three-year notes and an hour later the minutes of the September Fed meeting will hit the news wires.
Most analysts believe domestic and foreign investors will show a strong bidding appetite for today's 3-year note offering despite record low yields. Cash managers will look to stash their money in these relatively short-term securities since the economy looks doomed to many more months of puny growth. Traders making bets that the Federal Reserve will launch another big direct purchase program before the end of the year will also not likely be shy with their bids at this afternoon's auction. Look for this event to be mortgage market neutral.
The minutes of the September 21st Fed meeting may reflect some divisions among central bankers over whether to launch another big round of direct Treasury debt purchases. Investors seem firmly convinced that the dissenters will be voted down -- and Fed Chairman Bernanke and other more aggressive members of the Federal Open Market Committee will pull the quantitative easing trigger, probably as soon as their next meeting on November 2nd and 3rd. While action from the Fed seems almost assured, don't bank on the Fed performing major miracles for the mortgage market. They will likely begin rather small, particularly since this tactic's effectiveness is still highly debatable. Most observers believe the Fed will launch their new initiative by buying $80 to $100 billion worth of Treasury debt over the six weeks between each Open Market Committee meeting. At that pace, the Fed's so called "QE2" economic stimulus plan will not likely drive mortgage interest rates much lower than current levels. Don't lose sight of the fact that if the Fed is successful in stimulating economic activity through this new effort - the attendant rise in inflation pressures will almost certainly serve to tilt the trend trajectory of mortgage interest rates in favor of higher rates and lower investor prices
Most analysts believe domestic and foreign investors will show a strong bidding appetite for today's 3-year note offering despite record low yields. Cash managers will look to stash their money in these relatively short-term securities since the economy looks doomed to many more months of puny growth. Traders making bets that the Federal Reserve will launch another big direct purchase program before the end of the year will also not likely be shy with their bids at this afternoon's auction. Look for this event to be mortgage market neutral.
The minutes of the September 21st Fed meeting may reflect some divisions among central bankers over whether to launch another big round of direct Treasury debt purchases. Investors seem firmly convinced that the dissenters will be voted down -- and Fed Chairman Bernanke and other more aggressive members of the Federal Open Market Committee will pull the quantitative easing trigger, probably as soon as their next meeting on November 2nd and 3rd. While action from the Fed seems almost assured, don't bank on the Fed performing major miracles for the mortgage market. They will likely begin rather small, particularly since this tactic's effectiveness is still highly debatable. Most observers believe the Fed will launch their new initiative by buying $80 to $100 billion worth of Treasury debt over the six weeks between each Open Market Committee meeting. At that pace, the Fed's so called "QE2" economic stimulus plan will not likely drive mortgage interest rates much lower than current levels. Don't lose sight of the fact that if the Fed is successful in stimulating economic activity through this new effort - the attendant rise in inflation pressures will almost certainly serve to tilt the trend trajectory of mortgage interest rates in favor of higher rates and lower investor prices
Friday, October 8, 2010
Friday, Ocotber 8, 2010
The Labor Department reported earlier this morning that the economy shed more jobs in September than the vast majority of analysts had anticipated. September marked the fourth straight month the economy created fewer jobs than it lost. Nonfarm payrolls dropped 95,000 last month. Private employment increased 64,000, less than expected, while government payrolls declined by 159,000 jobs, including 77,000 Census workers. The employment rate remained unchanged at 9.6% -- held down by fewer new entrants joining the labor force and more discouraged workers giving up the job search and moving to the sidelines.
The jobless rate has equaled or exceeded 9.5% for 14 consecutive months, surpassing the 13-month period from mid 1982 to 1983 as the longest span of elevated joblessness since monthly records began in 1948. The length of the average work week and average hourly earnings were both unchanged on a month-over-month basis.
Today's dismal employment report essentially guarantees the Fed will choose to launch another quantitative easing effort - with a formal announcement likely coming by the conclusion of the Federal Open Market Committee's 2-day meeting on November 2nd and 3rd. Mortgage investors have already largely priced-in expectations that the Fed will authorize the direct purchase of at least $1 trillion worth of Treasury debt obligations as part of their effort to rekindle economic activity.
Looking ahead to the coming week Uncle Sam will be conducting a three-part debt auction from Tuesday through Thursday, composed of 3- and 10-year notes together with a batch of 30-year bonds. The inflation data contained in Thursday's producer price index and Friday's consumer price index is expected to be mortgage market neutral. Friday's September Retail Sales number is also not expected to cause much of a stir in the mortgage market.
IN THE MEANTIME - REFI NOW - FIXED RATES IN THE 3'S AND ARM RATES IN THE 2'S...C'MON NOW...CONTACT ME TODAY anagel@acfloans.com
The jobless rate has equaled or exceeded 9.5% for 14 consecutive months, surpassing the 13-month period from mid 1982 to 1983 as the longest span of elevated joblessness since monthly records began in 1948. The length of the average work week and average hourly earnings were both unchanged on a month-over-month basis.
Today's dismal employment report essentially guarantees the Fed will choose to launch another quantitative easing effort - with a formal announcement likely coming by the conclusion of the Federal Open Market Committee's 2-day meeting on November 2nd and 3rd. Mortgage investors have already largely priced-in expectations that the Fed will authorize the direct purchase of at least $1 trillion worth of Treasury debt obligations as part of their effort to rekindle economic activity.
Looking ahead to the coming week Uncle Sam will be conducting a three-part debt auction from Tuesday through Thursday, composed of 3- and 10-year notes together with a batch of 30-year bonds. The inflation data contained in Thursday's producer price index and Friday's consumer price index is expected to be mortgage market neutral. Friday's September Retail Sales number is also not expected to cause much of a stir in the mortgage market.
IN THE MEANTIME - REFI NOW - FIXED RATES IN THE 3'S AND ARM RATES IN THE 2'S...C'MON NOW...CONTACT ME TODAY anagel@acfloans.com
Thursday, October 7, 2010
Thursday, October 7, 2010
Initial claims for state unemployment benefits dropped 11,000 to a seasonally adjusted 455,000 according to data released by the Labor Department earlier this morning. It is very important to note that this data will have no bearing on tomorrow's much more important September nonfarm payroll figures -- because the weekly data fell outside of the survey period for the monthly headcount.
The second straight week of seasonal declines in the number of workers standing in line to file first-time jobless benefits pushed them further away from the nine-month high of 504,000 set in August. Weekly claims are now in the upper end of the 400,000 - 450,000 range that analysts normally associate with labor market stability. The number of people still receiving benefits after an initial week of aid dropped by 48,000 while the number of people receiving emergency jobless benefit extensions from the government increased by 157,000+.
Most mortgage investors have already set their hedges in front of tomorrow's 8:30 a.m. ET release of the September nonfarm payroll figures and have now moved into "wait-and-see" mode. While most believe the private sector produced a net gain of some 80,000 jobs last month -- state and federal governments likely experienced a net job loss of almost the same number. If this assessment proves accurate, selling pressure in the mortgage market will likely develop as traders scramble to unwind losing bets that net job loss in September would be much higher. It will likely take a net job loss of 25,000 and/or a jump in the national jobless rate to 9.8% or more to trigger a notable rally to yet lower rates and higher prices. Heads up.
The second straight week of seasonal declines in the number of workers standing in line to file first-time jobless benefits pushed them further away from the nine-month high of 504,000 set in August. Weekly claims are now in the upper end of the 400,000 - 450,000 range that analysts normally associate with labor market stability. The number of people still receiving benefits after an initial week of aid dropped by 48,000 while the number of people receiving emergency jobless benefit extensions from the government increased by 157,000+.
Most mortgage investors have already set their hedges in front of tomorrow's 8:30 a.m. ET release of the September nonfarm payroll figures and have now moved into "wait-and-see" mode. While most believe the private sector produced a net gain of some 80,000 jobs last month -- state and federal governments likely experienced a net job loss of almost the same number. If this assessment proves accurate, selling pressure in the mortgage market will likely develop as traders scramble to unwind losing bets that net job loss in September would be much higher. It will likely take a net job loss of 25,000 and/or a jump in the national jobless rate to 9.8% or more to trigger a notable rally to yet lower rates and higher prices. Heads up.
Wednesday, October 6, 2010
Wednesday, October 6, 2010
IT'S GAME TIME!!! REDS WILL ROLL IN PHILLY!!!
A surprising contraction in private payrolls last month has contributed in large-part to this morning's rally in the mortgage market.
ADP Employer Services said private payrolls fell by 39,000 jobs in September, from an upwardly revised gain of 10,000 in August. Analysts had been looking for an increase of 24,000 jobs in September. Many see the ADP data hinting at a worst-than-expected headline September nonfarm payroll number from the Labor Department on Friday.
If that expectation proves accurate, and the economy created fewer jobs than it lost last month, another round of quantitative easing from the Fed will be a "done deal." Look for another $1 trillion of stimulus from the Fed will probably result in a maximum of a 25 basis point drop in 30-year mortgage interest rates from current levels.
More experienced market participants will likely be hesitant to read too much into the ADP Employer Services data since it has underperformed the government's more important nonfarm payrolls figures by 80,000 over the past six months. According to data compiled by Timothy Horman, columnist for Bloomberg.com -- over the past six months, ADP's initial figures were closest to the Labor Department's first estimate of private payrolls in May, when it overstated the gain in jobs by 14,000. The estimate was least accurate in April, when it underestimated the employment gain by 199,000. Assigning a lot of creditability to the ADP number seems to be akin to calling a kid a pitching "ace" because he threw the ball six times -- and all six pitches hit the backstop.
In a separate report, the Mortgage Bankers of America announced that their composite mortgage application index fell by 0.2% during the week ended October 1st. Refinance demand dropped by 2.5% on a week-over-week basis while purchase applications posted a gain of 9.3% for the period.
A surprising contraction in private payrolls last month has contributed in large-part to this morning's rally in the mortgage market.
ADP Employer Services said private payrolls fell by 39,000 jobs in September, from an upwardly revised gain of 10,000 in August. Analysts had been looking for an increase of 24,000 jobs in September. Many see the ADP data hinting at a worst-than-expected headline September nonfarm payroll number from the Labor Department on Friday.
If that expectation proves accurate, and the economy created fewer jobs than it lost last month, another round of quantitative easing from the Fed will be a "done deal." Look for another $1 trillion of stimulus from the Fed will probably result in a maximum of a 25 basis point drop in 30-year mortgage interest rates from current levels.
More experienced market participants will likely be hesitant to read too much into the ADP Employer Services data since it has underperformed the government's more important nonfarm payrolls figures by 80,000 over the past six months. According to data compiled by Timothy Horman, columnist for Bloomberg.com -- over the past six months, ADP's initial figures were closest to the Labor Department's first estimate of private payrolls in May, when it overstated the gain in jobs by 14,000. The estimate was least accurate in April, when it underestimated the employment gain by 199,000. Assigning a lot of creditability to the ADP number seems to be akin to calling a kid a pitching "ace" because he threw the ball six times -- and all six pitches hit the backstop.
In a separate report, the Mortgage Bankers of America announced that their composite mortgage application index fell by 0.2% during the week ended October 1st. Refinance demand dropped by 2.5% on a week-over-week basis while purchase applications posted a gain of 9.3% for the period.
Tuesday, October 5, 2010
Tuesday, October 5, 2010
Look for the mortgage market to trade in a very tight range today as mortgage investors continue to speculate on the size of the Federal Reserve's quantitative easing 2.0 program. Some analyst have estimated the Fed will buy at least another $1 trillion of Treasury debt obligations while others have predicted the Fed will buy $80 to $100 billion between Open Market Committee meetings until the economy generates enough sustained growth momentum to justify ending the program. The Fed is broadly expected to launch this second round of quantitative easing as early as the next meeting of the Federal Open Market Committee, scheduled for November 2nd and 3rd.
Quantitative easing is a process wherein the Fed prints dollars and uses the cash to directly purchase Treasury debt obligations in the open market - with the expressed intention of rekindling economic activity to the level that inflation pressures grow and the threat of a downward recessionary spiral dissipates. Keep-in-mind should the Fed be successful in this endeavor -- the longer-term upward pressure on note rates will be far more significant that any support this strategy may give to the short-term prospects for steady to fractionally lower mortgage interest rates. Be at least a bit skeptical of some who claim the coming round of "quantitative easing" from the Fed will virtually guarantee a 3.5% or lower target for 30-year conforming fixed rate mortgages.
The dynamics of the next effort by the Fed to simulate economic growth will be largely determined by Friday morning's September nonfarm payroll report. If last month's data shows the economy lost more jobs than it created -especially if the private sector component of the report shows renewed weakness -- the actual dollar size of the Fed's direct government debt purchase program will likely increase dramatically. In the off-chance the September nonfarm payroll data shows positive job growth - particularly in the private sector - the Fed will likely choose to take a more cautious approach toward injecting more stimulus into the economy.
The credit markets have already rallied quite a bit as investors have been buying up all manner of government debt obligations in anticipation the Fed will soon resume large-scale purchases of these assets. A stronger-than-expected employment report on Friday will take a considerable amount of the wind-out-of-the-sales out of investors' current front-running strategy. If so, look for a mad rush to the market exists to develop as investors scale back their estimate of the Fed's forward looking buying interest - a condition almost sure to put upward pressure on Treasury yields and mortgage interest rates alike.
The Institute of Supply Management reported earlier this morning that its measure of activity in the service sector of the economy, a sector which accounts for two-thirds or more of all economic activity, accelerated last month more rapidly than most economists had expected. The ISM said its services index rose to a reading of 53.2 in September from 51.5 in August. The report's employment component rose to 50.2 last month after having dipped to 48.2 in August.
New orders also showed a solid improvement rising to 54.9 from 52.4. This survey covers industries that range from utilities and retailing to health care, housing, finance and transportation. Today's results suggest that after a brief hiccup in late summer, the handoff from manufacturing to service sector led growth is slowly taking place. The current pace of growth is probably not fast enough to dissuade the Fed from giving the "green-light" to another round of economic stimulus.
Quantitative easing is a process wherein the Fed prints dollars and uses the cash to directly purchase Treasury debt obligations in the open market - with the expressed intention of rekindling economic activity to the level that inflation pressures grow and the threat of a downward recessionary spiral dissipates. Keep-in-mind should the Fed be successful in this endeavor -- the longer-term upward pressure on note rates will be far more significant that any support this strategy may give to the short-term prospects for steady to fractionally lower mortgage interest rates. Be at least a bit skeptical of some who claim the coming round of "quantitative easing" from the Fed will virtually guarantee a 3.5% or lower target for 30-year conforming fixed rate mortgages.
The dynamics of the next effort by the Fed to simulate economic growth will be largely determined by Friday morning's September nonfarm payroll report. If last month's data shows the economy lost more jobs than it created -especially if the private sector component of the report shows renewed weakness -- the actual dollar size of the Fed's direct government debt purchase program will likely increase dramatically. In the off-chance the September nonfarm payroll data shows positive job growth - particularly in the private sector - the Fed will likely choose to take a more cautious approach toward injecting more stimulus into the economy.
The credit markets have already rallied quite a bit as investors have been buying up all manner of government debt obligations in anticipation the Fed will soon resume large-scale purchases of these assets. A stronger-than-expected employment report on Friday will take a considerable amount of the wind-out-of-the-sales out of investors' current front-running strategy. If so, look for a mad rush to the market exists to develop as investors scale back their estimate of the Fed's forward looking buying interest - a condition almost sure to put upward pressure on Treasury yields and mortgage interest rates alike.
The Institute of Supply Management reported earlier this morning that its measure of activity in the service sector of the economy, a sector which accounts for two-thirds or more of all economic activity, accelerated last month more rapidly than most economists had expected. The ISM said its services index rose to a reading of 53.2 in September from 51.5 in August. The report's employment component rose to 50.2 last month after having dipped to 48.2 in August.
New orders also showed a solid improvement rising to 54.9 from 52.4. This survey covers industries that range from utilities and retailing to health care, housing, finance and transportation. Today's results suggest that after a brief hiccup in late summer, the handoff from manufacturing to service sector led growth is slowly taking place. The current pace of growth is probably not fast enough to dissuade the Fed from giving the "green-light" to another round of economic stimulus.
Monday, October 4, 2010
Monday, October 4, 2010
The mortgage market is the beneficiary of a round of "flight-to-quality" buying by domestic and foreign investors this morning spawned by new terror warnings for Europe and word that Swiss Banks may have to almost double their capital reserves.
These two events are currently little more than background noise compared to the growing chatter regarding the increasing likelihood the Fed will launch a second round of quantitative easing as early as the next meeting of the Federal Open Market Committee scheduled for November 2nd and 3rd.
Quantitative easing is a process wherein the Fed prints dollars and uses the cash to directly purchase Treasury debt obligations in the open market - with the expressed intention of rekindling economic activity to the level that inflation pressures grow and the threat of a downward recessionary spiral dissipates.
Keep-in-mind should the Fed be successful in this endeavor -- the longer-term upward pressure on note rates will be far more significant that any support this strategy may give to the short-term prospects for steady to fractionally lower mortgage interest rates. For this reason be at least a bit skeptical of some who claim the forth coming round of "quantitative easing" from the Fed will virtually guarantee a 3.5% or lower target for 30-year conforming fixed rate mortgages.
In terms of economic news the National Association of Realtors said its Pending Home Sales Index, based on contracts signed in August, increased 4.3% from month earlier levels. It was the second straight month of gains in the index. The data shows home sales have stabilized at very low levels. From this statistical floor, we could see some good percentage increases for the pace of the pending home sales index without representing a notable uptrend in housing conditions. Look for mortgage investors to shrug this data off as they did today - for many months yet.
In a separate report the Commerce Department said factory orders fell 0.5% last month. As you are probably aware, manufacturing activity has been the primary driver behind what little economic growth the country has experienced so far this year. The latest data shows the stockpile rebuilding that has been at the center of the surge in manufacturing demand will likely provide less of boost to growth through the balance of the year. This tidbit of news from the manufacturing sector was broadly anticipated - rendering it essentially "toothless" with respect to its impact on the mortgage market today.
These two events are currently little more than background noise compared to the growing chatter regarding the increasing likelihood the Fed will launch a second round of quantitative easing as early as the next meeting of the Federal Open Market Committee scheduled for November 2nd and 3rd.
Quantitative easing is a process wherein the Fed prints dollars and uses the cash to directly purchase Treasury debt obligations in the open market - with the expressed intention of rekindling economic activity to the level that inflation pressures grow and the threat of a downward recessionary spiral dissipates.
Keep-in-mind should the Fed be successful in this endeavor -- the longer-term upward pressure on note rates will be far more significant that any support this strategy may give to the short-term prospects for steady to fractionally lower mortgage interest rates. For this reason be at least a bit skeptical of some who claim the forth coming round of "quantitative easing" from the Fed will virtually guarantee a 3.5% or lower target for 30-year conforming fixed rate mortgages.
In terms of economic news the National Association of Realtors said its Pending Home Sales Index, based on contracts signed in August, increased 4.3% from month earlier levels. It was the second straight month of gains in the index. The data shows home sales have stabilized at very low levels. From this statistical floor, we could see some good percentage increases for the pace of the pending home sales index without representing a notable uptrend in housing conditions. Look for mortgage investors to shrug this data off as they did today - for many months yet.
In a separate report the Commerce Department said factory orders fell 0.5% last month. As you are probably aware, manufacturing activity has been the primary driver behind what little economic growth the country has experienced so far this year. The latest data shows the stockpile rebuilding that has been at the center of the surge in manufacturing demand will likely provide less of boost to growth through the balance of the year. This tidbit of news from the manufacturing sector was broadly anticipated - rendering it essentially "toothless" with respect to its impact on the mortgage market today.
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