Following a stronger-than-expected weekly jobless claims number - mortgage investors were quick to push mortgage interest rates fractionally higher in the day's early going.
According to the Labor Department, new applications for jobless benefits unexpectedly fell by 5,000 last week to the lowest level in more than 14 months. While this jobless claims report falls outside of the survey period for tomorrow's 8:30 a.m. ET release of the far more important November nonfarm payroll figures -- some investors wasted no time placing their "bets" for a surprisingly mortgage market unfriendly employment story.
I personally think these mortgage investors may have jumped the gun a bit. Even though the first-time claims number was better than the majority of economist had anticipated - the number of people continuing to collect benefits after the initial week rose by 28,000. Going one step further, with hiring so slow, the unemployed are exhausting their regular benefits (26 weeks in most states) and instead are claiming extended benefits or Emergency Unemployment Compensation. Growing totals for these programs have more than offset the decline in the regular weekly jobless claims number. For the week ending November 14th, the enrollment in the extended benefits programs offered by the government grew by 323,000. From this perspective, the weekly jobless claims numbers are almost certainly glossing over the underlying anemic conditions in the labor market.
The probabilities remain high that Friday's November nonfarm payroll will fall within shouting distance of the consensus estimate for a national job loss number of 130,000. If so, the Labor Department's data will likely exert little, if any influence on the mortgage market. On the other hand, if the headline number shows the economy lost 150,000 jobs or more and/or the national jobless rate exceeds 10.3% -- the odds are high that a large number of investors will be caught leaning the wrong way - resulting in higher prices and lower mortgage interest rates before the day is over.
Thursday, December 3, 2009
Wednesday, December 2, 2009
Wednesday, December 2, 2009
The swoon in the mortgage market yesterday afternoon was primarily the result of capital flowing out of the relative safety of U.S. government debt obligations and mortgage-backed securities back into higher risk asset classes as market participants became increasingly convinced the Dubai story would not morph into a another major global financial crisis. Easy come - easy go.
Trading action so far today is being driven by a relatively few players moving light volume. There is nothing much going on to inspire more dynamic action between buyers and sellers.
According to a report released earlier this morning by ADP Employer Services, U.S. private employers cut 169,000 jobs from their payrolls in November which was fewer than the 195,000 jobs lost in October but more than the 155,000 jobs loss that most analysts had been anticipating the data would indicate. It was the eighth straight month of fewer job losses reported by ADP. It may not be exactly what market participants were looking for, but at least the trend is right. The ADP report has been weaker than the government's much more important Nonfarm Payroll figurers in nine of the past 11 months, with an average miss of -55,000. The probabilities remain high that Friday's November nonfarm payroll will fall within shouting distance of the consensus estimate for a national job loss number of 130,000. If so, the Labor Department's data will likely exert little if any influence on the mortgage market.
In their standard Wednesday report, for the week ended November 27th the Mortgage Bankers of America said their mortgage application index (a value that includes request for both purchase and refinance loans) was up 2.1% over the previous week. The purchase index was up 4.1% while the refinance index gained 1.7% from the week before. Refinance applications accounted for 72.1% of all applications. It was the first time in eight weeks that both the purchase and refinance indices increase from the previous week.
To sustain the current level of mortgage interest rates will likely require softer-than-expected November employment numbers on Friday and/or a major sell-off in the stock markets. While both outcomes are certainly possible - they are each in their own right not very probable.
In my judgment, Friday's headline nonfarm payroll report will need to show the economy lost more than 150,000 jobs and/or the national jobless rate exceeded 10.3% last month in order to induce mortgage investors to push mortgage interest rates notably lower. In terms of stock market trading activity it will likely take a convincing move below the 10,200 mark for the Dow Jones Industrial Average before a sustained flow of capital out of the stock market could be counted on to support the prospects for notably lower mortgage interest rates.
Trading action so far today is being driven by a relatively few players moving light volume. There is nothing much going on to inspire more dynamic action between buyers and sellers.
According to a report released earlier this morning by ADP Employer Services, U.S. private employers cut 169,000 jobs from their payrolls in November which was fewer than the 195,000 jobs lost in October but more than the 155,000 jobs loss that most analysts had been anticipating the data would indicate. It was the eighth straight month of fewer job losses reported by ADP. It may not be exactly what market participants were looking for, but at least the trend is right. The ADP report has been weaker than the government's much more important Nonfarm Payroll figurers in nine of the past 11 months, with an average miss of -55,000. The probabilities remain high that Friday's November nonfarm payroll will fall within shouting distance of the consensus estimate for a national job loss number of 130,000. If so, the Labor Department's data will likely exert little if any influence on the mortgage market.
In their standard Wednesday report, for the week ended November 27th the Mortgage Bankers of America said their mortgage application index (a value that includes request for both purchase and refinance loans) was up 2.1% over the previous week. The purchase index was up 4.1% while the refinance index gained 1.7% from the week before. Refinance applications accounted for 72.1% of all applications. It was the first time in eight weeks that both the purchase and refinance indices increase from the previous week.
To sustain the current level of mortgage interest rates will likely require softer-than-expected November employment numbers on Friday and/or a major sell-off in the stock markets. While both outcomes are certainly possible - they are each in their own right not very probable.
In my judgment, Friday's headline nonfarm payroll report will need to show the economy lost more than 150,000 jobs and/or the national jobless rate exceeded 10.3% last month in order to induce mortgage investors to push mortgage interest rates notably lower. In terms of stock market trading activity it will likely take a convincing move below the 10,200 mark for the Dow Jones Industrial Average before a sustained flow of capital out of the stock market could be counted on to support the prospects for notably lower mortgage interest rates.
Tuesday, December 1, 2009
The Dubai saga that agitated financial markets last week is coming to an end. The rest of the world is starting to minimize the Dubai World story now. Dubai is in talks with its lenders to restructure $26 billion of debt, easing concerns that a default would add to the $1.7 trillion financial companies around the world have written down as the credit crisis impaired the value of their assets. The general sense among credit market participants is that fallout from the Dubai situation will be both short-lived and very limited. The resulting flow of capital that poured into the relatively safety of U.S. government debt obligations and mortgage-backed securities late last week as the Dubai story hit the newswires is now flowing back out into riskier asset classes like stocks -- creating some slight upward pressure on mortgage interest rates in today's early going.
The Institute for Supply Management (a not-for-profit United States association established for the benefit of the purchasing and supply management profession, particularly in the areas of education and research) reported their November measure of overall national manufacturing activity decelerated to 53.6% from 55.7% in October. The modest decline in the overall index did not ring any alarm bells among mortgage investors since the index remains consistent with the general view that industrial production growth and growth within the economy in general will be sustained into the foreseeable future. That perspective is already reflected on virtually every mortgage rate sheet in the marketplace.
In other news of the day the National Association of Realtors reported its Pending Home Sales Index (a measure of the number of contracts signed for the sale of existing homes) rose a better than expected 3.7% in October, its ninth consecutive monthly gain. The housing market, one the primary triggers of the worst U.S. recession in 70 years, continues to show signs of recovering from a three-year decline. However, many mortgage investors are discounting the current improvement in the housing market, reasoning that the recovery is artificially supported by tax credits for both first-time and move up borrowers and by mortgage interest rates resting near historical lows due to direct government intervention. This particular report will not likely exert much, if any influence on the direction of mortgage interest rates until/unless it reflects market conditions devoid of the massive but temporary government support programs.
To sustain the current level of mortgage interest rates will likely require softer-than-expected November employment numbers on Friday and/or a major sell-off in the stock markets. While both outcomes are certainly possible - they are each in their own right not very probable.
In my judgment, Friday's headline nonfarm payroll report will need to show the economy lost more than 150,000 jobs and/or the national jobless rate exceeded 10.3% last month in order to induce mortgage investors to push mortgage interest rates notably lower. In terms of stock market trading activity it will likely take a convincing move below the 10,200 mark for the Dow Jones Industrial Average before a sustained flow of capital out of the stock market could be counted on to support the prospects for notably lower mortgage interest rates.
The Institute for Supply Management (a not-for-profit United States association established for the benefit of the purchasing and supply management profession, particularly in the areas of education and research) reported their November measure of overall national manufacturing activity decelerated to 53.6% from 55.7% in October. The modest decline in the overall index did not ring any alarm bells among mortgage investors since the index remains consistent with the general view that industrial production growth and growth within the economy in general will be sustained into the foreseeable future. That perspective is already reflected on virtually every mortgage rate sheet in the marketplace.
In other news of the day the National Association of Realtors reported its Pending Home Sales Index (a measure of the number of contracts signed for the sale of existing homes) rose a better than expected 3.7% in October, its ninth consecutive monthly gain. The housing market, one the primary triggers of the worst U.S. recession in 70 years, continues to show signs of recovering from a three-year decline. However, many mortgage investors are discounting the current improvement in the housing market, reasoning that the recovery is artificially supported by tax credits for both first-time and move up borrowers and by mortgage interest rates resting near historical lows due to direct government intervention. This particular report will not likely exert much, if any influence on the direction of mortgage interest rates until/unless it reflects market conditions devoid of the massive but temporary government support programs.
To sustain the current level of mortgage interest rates will likely require softer-than-expected November employment numbers on Friday and/or a major sell-off in the stock markets. While both outcomes are certainly possible - they are each in their own right not very probable.
In my judgment, Friday's headline nonfarm payroll report will need to show the economy lost more than 150,000 jobs and/or the national jobless rate exceeded 10.3% last month in order to induce mortgage investors to push mortgage interest rates notably lower. In terms of stock market trading activity it will likely take a convincing move below the 10,200 mark for the Dow Jones Industrial Average before a sustained flow of capital out of the stock market could be counted on to support the prospects for notably lower mortgage interest rates.
Monday, November 30, 2009
Monday, November 30, 2009
As more details emerge regarding the possible debt default in Dubai -- things do not appear nearly as bad as originally feared.
· The Dubai government has disclaimed responsibility for the debts of Dubai World. A Dubai government official made it clear during a press conference earlier today that while the government has an ownership stake in the company Dubai World, the conglomerate had long operated as a standalone entity and its debt was never guaranteed by the emirate's government. Because of this arrangement, the sovereign debt obligations of Dubai were in no way threatened by the restructuring of the credit obligations of the individual company.
· Global credit market investors were further comforted by an announcement by the United Arab Emirates central bank today that it would provide additional liquidity to local banks as needed -- thus averting any possibility of a major run on the deposits of the many large banks in the region.
· Last but not lest, domestic credit market participants breathed a collective sigh of relief when it was determined over the weekend that major money center banks here in the U.S. have little to no loan exposures to the debt obligations of Dubai World.
As concerns about another Lehman Brothers like meltdown in the global credit markets begin to fade -- so too will the flow of "flight-to-quality" capital into the safe-haven of U.S. government debt obligations and mortgage-backed securities. To sustain the current level of mortgage interest rates will likely require softer-than-expected November employment numbers on Friday and/or a major sell-off in the stock markets. While both outcomes are certainly possible - they are each in their own right not very probable.
In my judgment, Friday's headline nonfarm payroll report will need to show the economy lost more than 150,000 jobs and/or the national jobless rate exceeded 10.3% last month in order to induce mortgage investors to push mortgage interest rates notably lower. In terms of stock market trading activity it will likely take a convincing move below the 10,200 mark for the Dow Jones Industrial Average before a sustained flow of capital out of the stock market could be counted on to support the prospects for notably lower mortgage interest rates.
· The Dubai government has disclaimed responsibility for the debts of Dubai World. A Dubai government official made it clear during a press conference earlier today that while the government has an ownership stake in the company Dubai World, the conglomerate had long operated as a standalone entity and its debt was never guaranteed by the emirate's government. Because of this arrangement, the sovereign debt obligations of Dubai were in no way threatened by the restructuring of the credit obligations of the individual company.
· Global credit market investors were further comforted by an announcement by the United Arab Emirates central bank today that it would provide additional liquidity to local banks as needed -- thus averting any possibility of a major run on the deposits of the many large banks in the region.
· Last but not lest, domestic credit market participants breathed a collective sigh of relief when it was determined over the weekend that major money center banks here in the U.S. have little to no loan exposures to the debt obligations of Dubai World.
As concerns about another Lehman Brothers like meltdown in the global credit markets begin to fade -- so too will the flow of "flight-to-quality" capital into the safe-haven of U.S. government debt obligations and mortgage-backed securities. To sustain the current level of mortgage interest rates will likely require softer-than-expected November employment numbers on Friday and/or a major sell-off in the stock markets. While both outcomes are certainly possible - they are each in their own right not very probable.
In my judgment, Friday's headline nonfarm payroll report will need to show the economy lost more than 150,000 jobs and/or the national jobless rate exceeded 10.3% last month in order to induce mortgage investors to push mortgage interest rates notably lower. In terms of stock market trading activity it will likely take a convincing move below the 10,200 mark for the Dow Jones Industrial Average before a sustained flow of capital out of the stock market could be counted on to support the prospects for notably lower mortgage interest rates.
Wednesday, November 25, 2009
Wednesday, November 25, 2009
This morning's deluge of macro-economic data initially created a flurry of trading activity in the mortgage market - but the few investors still at their desks quickly lost interest. As I write, trading volume in the mortgage market is exceptionally thin - floating back and forth in a very, very narrow range.
The Labor Department started the parade of economic news this morning - announcing the number of workers filing first-time applications for jobless benefits fell by a very surprising 35,000 during the week ended November 21st. It was the fourth consecutive week of improvement for this measure of the health of the labor sector. The number of unemployed continuing to draw benefits fell by 190,000. Most market participants shrugged off the Labor Department data as largely distorted by outsized seasonal adjustments.
The Commerce Department chimed in with their report on Personal Income and Spending for October. According to the government, spending by consumers rebounded by 0.7% last month - solidly outdistancing the consensus estimate for a gain of 0.5%. Incomes rose by 0.2% slightly ahead of economists' guesstimates for a gain of 0.1%. Most importantly of all, the Personal Consumption Expenditure Index component of the report, the Fed's preferred measure of inflation pressure at the consumer level, posted a very modest gain of 0.2%. After a quick once over - mortgage investors didn't give this data another thought.
The march of macro-economic data continued when the Census Bureau reported October new home sales rose a stronger than expected 6.2% over the prior month level. As of October, new-home sales are running at their best pace since last fall. Once again mortgage investors were quick to discount this report - noting the sales strength is only evident in the South, with sales dropping decisively in the other three regions.
Rounding out this morning's string of economic reports was news from the Mortgage Bankers of America that their seasonally adjusted mortgage application index slipped 4.5% lower last week. The purchase index gained 9.6% while the refinance component of the index declined by 9.5%. The reason for the downward skew in the overall index is that refinance applications accounted for 71.7% of all application last week.
Uncle Sam is wrapping up this three-part borrowing spree this week with today's auction of $32 billion worth of 7-year notes. If the strong bias of the earlier two offerings prevails again today this event will not likely exert any notable influence on the trend trajectory of mortgage interest rates. In the unlikely event this offering is poorly bid - look for government debt yields and mortgage interest rates to edge higher.
Tuesday, November 24, 2009
Mortgage investors nudged rates fractionally lower this morning after a revision to the government's data for third-quarter economic growth came in just below expectations and fanned some doubt about the sustainability of the budding economic recovery.
The Commerce Department's second estimate of third-quarter economic output showed growth running at a 2.8% pace rather than the 3.5% annualized clip originally reported. It was the strongest level of economic growth since the third-quarter of 2007 and was driven in large part by government fiscal stimulus programs. If all of Uncle Sam's various "booster" shots designed to support third-quarter growth are removed, our domestic economy would have barely registered a pulse. As long as the economy remains on government sponsored life support -- any upward pressure on mortgage interest rates will likely be muted.
Another day - another government debt auction. Uncle Sam will be in the credit markets today looking to auction off a $42 billion stack of 5-year notes. Yesterday's 2-year note auction results were decent but unremarkable, marking a retreat from the string of spectacular sales results in recent months. Hopes are high that today's offering will be well bid. If so, this auction will likely be a non-event as far as its impact on the trend trajectory of mortgage interest rates is concerned. Keep your fingers crossed that this assessment proves accurate. A poorly bid note auction could very well create a "snowball-effect" that pushes both government debt yields and mortgage interest rates higher.
Monday, November 23, 2009
Monday, November 23, 2009
The credit markets are setting up for another huge dose of supply from Uncle Sam this week. The Treasury Department will be peddling $118 billion worth of 2-, 5- and 7-year notes over the course of the next three business days. The action starts this afternoon with the sale of $44 billion of 2-year notes.
Despite the supply pressure, recent government debt sales have drawn generally solid demand. At a minimum this week's offering will likely be welcomed by those players looking for a safe place to park cash until 2010. This week's auction schedule may create a little temporary choppiness in the mortgage market but the debt sales should pass without dramatically influencing the trend trajectory of mortgage interest rates much one way or the other.
The National Association of Realtors announced this morning that the pace of Existing Home Sales posted a surprisingly sharp 10.1% gain in October, following a similarly strong 8.8% gain in September. At 6.1 million annualized units, existing home sales are up nearly 24% compared with year ago levels and are currently running at their strongest pace since early '07. Even though the sales price of existing homes slid 7.1% lower as compared to last year -- it was the second consecutive month that the sales price slumped at a single-digit clip - making the October price dip a victory of sorts. The median price of an existing home in October was $173,100. Sales of previously owned homes, which make up more than 90% of the market, are complied from contract closings and may reflect purchases agreed upon weeks or months earlier.
The current condition of the housing market will be more accurately reflected when the October new home sales data is released on Wednesday (8:30 a.m. ET). The new home sales data is recorded when the contract is signed, not when the transaction closes, and is therefore considered by investors to be a far more timely indication of demand in the housing sector. Mortgage investors have an October New Home Sales gain of 4.5% already priced into their rate sheets. If the actual number closely approximates the forecast -- look for mortgage interest rates to remain little changed. A stronger than expected new home sales number will likely put some upward pressure on mortgage interest rates while a sharply lower than anticipated value will tend to support steady to perhaps fractionally lower rates.
FYI: Saint Louis Fed president James Bullard told reporters this weekend that he believes the central bank should keep alive its mortgage-related assets purchase program beyond its planned expiration at the end of March 2010. Bullard feels the program should be sustained at a "very low level" to give policymakers more flexibility as they work to extract the economy from a very painful recession. Mr. Bullard won't actually have a vote of policy matters until 2010.
Despite the supply pressure, recent government debt sales have drawn generally solid demand. At a minimum this week's offering will likely be welcomed by those players looking for a safe place to park cash until 2010. This week's auction schedule may create a little temporary choppiness in the mortgage market but the debt sales should pass without dramatically influencing the trend trajectory of mortgage interest rates much one way or the other.
The National Association of Realtors announced this morning that the pace of Existing Home Sales posted a surprisingly sharp 10.1% gain in October, following a similarly strong 8.8% gain in September. At 6.1 million annualized units, existing home sales are up nearly 24% compared with year ago levels and are currently running at their strongest pace since early '07. Even though the sales price of existing homes slid 7.1% lower as compared to last year -- it was the second consecutive month that the sales price slumped at a single-digit clip - making the October price dip a victory of sorts. The median price of an existing home in October was $173,100. Sales of previously owned homes, which make up more than 90% of the market, are complied from contract closings and may reflect purchases agreed upon weeks or months earlier.
The current condition of the housing market will be more accurately reflected when the October new home sales data is released on Wednesday (8:30 a.m. ET). The new home sales data is recorded when the contract is signed, not when the transaction closes, and is therefore considered by investors to be a far more timely indication of demand in the housing sector. Mortgage investors have an October New Home Sales gain of 4.5% already priced into their rate sheets. If the actual number closely approximates the forecast -- look for mortgage interest rates to remain little changed. A stronger than expected new home sales number will likely put some upward pressure on mortgage interest rates while a sharply lower than anticipated value will tend to support steady to perhaps fractionally lower rates.
FYI: Saint Louis Fed president James Bullard told reporters this weekend that he believes the central bank should keep alive its mortgage-related assets purchase program beyond its planned expiration at the end of March 2010. Bullard feels the program should be sustained at a "very low level" to give policymakers more flexibility as they work to extract the economy from a very painful recession. Mr. Bullard won't actually have a vote of policy matters until 2010.
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