The Federal Reserve is expected to stick to its mortgage market friendly monetary policy strategy when it wraps up its two-day meeting this afternoon at 2:15 p.m. ET.
Most analysts believe policymakers will be very hesitant to pull the plug on low interest rates too quickly due to persistent weakness in the labor sector, tight lending conditions at both the business and consumer levels, and a non-threatening inflation environment.
This morning's earlier news from the Labor Department indicating consumer prices rose a modest 0.4% in November while the more important core rate (a value that excludes the more volatile food and energy components) remained unchanged from month earlier levels - made the Fed's interest rate decision just a little bit easier. This morning's benign inflation reading at the consumer level went a long way toward tamping down budding inflation fears spurred by yesterday's stronger-than-expected uptick in November Producer Price index data series. For those still wringing their hands about inflation threats it is worth noting that the Fed's long-term forecast for their preferred measure of inflation, the Commerce Department index tied to consumer spending and excluding food and fuel, calls for gains in a range of 1.8% to 2.0%. That gauge, which is typically lower than the Consumer Price Index, was a mere 1.4% in the 12 months to October.
The "so what" factor here is significant. Amid tame inflation and elevated unemployment, the probabilities are extremely high the members of the Federal Open Market Committee will reaffirm their commitment to extremely low interest rates for an extended period. The committee will likely note the recent improvement in household spending and industrial production, but it will not likely use November's unexpected improvement in nonfarm payrolls to revise its overall economic and inflation outlook for its monetary stance. If this assessment proves accurate, the traditional post-meeting statement from the Fed (expected at 2:15 p.m. ET) will likely be mortgage interest rate neutral.
Any hint that the central bank is considering backing off of its asset purchase programs, or perhaps mulling an increase in its benchmark short-term interest rates will likely send mortgage interest rates notably higher. While it is worth noting this risk exists - the probability of such an outcome is exceptionally low.
In other news of the day, the Mortgage Bankers of America said mortgage applications nudged 0.3% higher during the week ended December 11th. Purchase applications fell 0.1% while refinance requests climbed 0.9%. The refinance share of mortgage activity increased to 75.2% of total applications from 74.4% last week. The MBA said borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.9% up 0.4% from the previous week. The rate remained above the all-time low of 4.61% set in the week ended March 27 - but well below well below the year-ago level of 5.18%.
Wednesday, December 16, 2009
Tuesday, December 15, 2009
The mortgage market took-one-on-the-chin this morning when the Labor Department reported prices paid at the farm and factory gate jumped more than double the 0.8% gain most analysts had been expecting.
The headline November producer price index was up a surprising 1.8% while the core index (a value stripped of the more volatile food and energy components) posted a larger-than-expected 0.5% gain. The lion's share of the surge in the November producer price index figures was created by a strong uptick in energy costs and new model year price increase for light trucks. Crude oil prices hit $82 a barrel during the survey period for this data but has since retreated sharply - trading around $70 a barrel. Near record excess manufacturing capacity and a jobless rate that is projected to average 10% for much of 2010 will likely prevent suppliers from passing on these increasing costs through at least the end of the first-quarter of the New Year.
Mortgage investors are taking a cautious "wait-and-see" approach in front of the last Federal Open Market Committee meeting of 2009. The text and tone of the Committee's post-meeting statement (scheduled for release at 2:15 p.m. ET, Wednesday, December 16th) will contribute significantly to the trend trajectory of mortgage interest rates up and through the Christmas break.
Any hint that the central bank is considering backing off of its asset purchase programs, or perhaps mulling an increase in its benchmark short-term interest rates will likely send mortgage interest rates notably higher. While it is worth noting this risk exists - the probability of such an outcome is exceptionally low.
Even considering today's outsized gains in the November producer price index numbers -- the underlying pace of inflation remains by all measures comfortably within the Fed's stated "comfort zone." From a historical perspective it is worth noting there has never been a time that the Fed has begun to tighten short-term interest rates as unemployment rates were rising and inflation pressures remained benign.
As things now stand, the central bank will probably guardedly acknowledge the recent improvement in the nation's economic backdrop -- but will clearly renew its commitment to keep its benchmark short-term interest rates near zero for an "extended period." If this assessment proves accurate, look for this event to have little, if any significant influence on the trend trajectory of mortgage interest rates.
The headline November producer price index was up a surprising 1.8% while the core index (a value stripped of the more volatile food and energy components) posted a larger-than-expected 0.5% gain. The lion's share of the surge in the November producer price index figures was created by a strong uptick in energy costs and new model year price increase for light trucks. Crude oil prices hit $82 a barrel during the survey period for this data but has since retreated sharply - trading around $70 a barrel. Near record excess manufacturing capacity and a jobless rate that is projected to average 10% for much of 2010 will likely prevent suppliers from passing on these increasing costs through at least the end of the first-quarter of the New Year.
Mortgage investors are taking a cautious "wait-and-see" approach in front of the last Federal Open Market Committee meeting of 2009. The text and tone of the Committee's post-meeting statement (scheduled for release at 2:15 p.m. ET, Wednesday, December 16th) will contribute significantly to the trend trajectory of mortgage interest rates up and through the Christmas break.
Any hint that the central bank is considering backing off of its asset purchase programs, or perhaps mulling an increase in its benchmark short-term interest rates will likely send mortgage interest rates notably higher. While it is worth noting this risk exists - the probability of such an outcome is exceptionally low.
Even considering today's outsized gains in the November producer price index numbers -- the underlying pace of inflation remains by all measures comfortably within the Fed's stated "comfort zone." From a historical perspective it is worth noting there has never been a time that the Fed has begun to tighten short-term interest rates as unemployment rates were rising and inflation pressures remained benign.
As things now stand, the central bank will probably guardedly acknowledge the recent improvement in the nation's economic backdrop -- but will clearly renew its commitment to keep its benchmark short-term interest rates near zero for an "extended period." If this assessment proves accurate, look for this event to have little, if any significant influence on the trend trajectory of mortgage interest rates.
Monday, December 14, 2009
Monday, December 14, 2009
Boring.
Trading activity has almost ground to a standstill in the mortgage market as investors choose to take a cautious "wait-and-see" approach in front of the last Federal Open Market Committee meeting of 2009. The text and tone of the Committee's post-meeting statement (scheduled for release at 2:15 p.m. ET, Wednesday, December 16th) will contribute significantly to the trend trajectory of mortgage interest rates up and through the Christmas break.
Any hint that the central bank is considering backing off of its asset purchase programs, or perhaps mulling an increase in its benchmark short-term interest rates will likely send mortgage interest rates notably higher. While it is worth noting this risk exists - the probability of such an outcome is exceptionally low.
The underlying pace of inflation remains by all measures comfortably within the Fed's stated "comfort zone." From a historical perspective there has never been a time that the Fed has begun to tighten short-term interest rates when unemployment rates were rising and inflation pressures remained benign. As things now stand, the central bank will probably guardedly acknowledge the recent improvement in the nation's economic backdrop -- but will clearly renew its commitment to keep its benchmark short-term interest rates near zero for an "extended period." If this assessment proves accurate, look for this event to have little, if any significant influence on the trend trajectory of mortgage interest rates.
Friday, December 11, 2009
Friday, December 11, 2009
It appears many mortgage investors are fretting far more strenuously over the disappointing auctions of 10-year and 30-year debt obligations than they are over a stronger-than-expected reading for November Retail Sales.
There are some analysts aggressively trying to fan worries that the last two Treasury auctions of the week drew less than stellar demand because --
Selling pressure in the mortgage market surged this morning driven by a report from the Commerce Department indicating November Retail Sales increased 1.3%, its largest advance since August, after rising 1.1% in October. It was the second straight monthly gain for overall retail sales and handily beat market expectations for a 0.7% gain. Compared to last year, overall retail sales were up 1.9%, the first year-on-year gain since August 2008. Excluding autos, retails sales increased 1.2% last month, the largest increase since January.
As the day progresses look for calmer, cooler heads to conclude that a significant amount of the surge in the pace of November sales was created through heavy discounting by retailers attempting to get a head-start on the holiday season. There is still a big question mark attached to the retail sales data regarding the sustainability of November's solid performance. Fundamentally, conditions remain poor for consumers. Wage income is more than 3.0% below its year-ago level and there is little chance of improvement in that figure until the labor sector once again begins to produce more jobs than it looses on a month-over-month basis. In a nutshell - in the judgment of many of the so called "experts", it is unlikely this report is as threatening to the prospects of steady to perhaps fractionally lower mortgage interest rates as many "talking-heads" are currently trying to make it out to be.
Stay Tuned...
Tuesday, December 8, 2009
Tuesday, December 8, 2009
Global stock markets fell hard earlier today as pessimistic news reports trumpeting details of a resurgent credit crisis in
Uncle Sam will be in the credit markets today looking to sell a stack of 3-year notes worth $40 billion. The auction will conclude at 1:00 p.m. ET and is expected to be well bid - hopefully setting the stage for an equally well bid $21 billion 10-year note sale tomorrow and a $13 billion 30-year bond offering on Thursday. Look for today's auction to exert little, if any meaningful influence on the trend trajectory of mortgage interest rates.
Monday, December 7, 2009
Monday, December 7, 2009
With nothing on the economic calendar to stir trading activity - mortgage investors are generally marking time ahead of the three-part, $71 billion Treasury debt auction scheduled for Tuesday through Thursday. Believe-it-or-not last week's heavy sell-off in the government debt market has probably limited the upward pressure this event might have otherwise exerted on mortgage interest rates over the course of the next five business days.
Mortgage investors will be intently watching the Treasury auction results for any sign that a change in market psychology occurred in conjunction with last Friday's dramatically improved labor market story - or for an indication skepticism about the sustainability of the budding economic recovery remains high among credit market participants.
Given strong seasonal demand and the sharp price markdowns of last week, I think there is a reasonable chance overall demand for this week's government debt offerings will be decent. Should my assessment prove accurate, the Treasury auctions will tend to be supportive of at least steady mortgage interest rates - with an outside chance rates will find the traction necessary to move to fractionally lower levels.
The economic release of most interest to mortgage investors - the November Retail Sales report - does not arrive until Friday.
Friday, December 4, 2009
Friday, December 4 2009
It is almost too good to be true.
Employers cut far fewer jobs than expected last month in the best showing for the labor market since the recession began in December 2007. According to government figures, the economy shed only 11,000 jobs last month - far fewer than the 130,000 drop in the November headline nonfarm payroll figure most economists had anticipated. The national jobless rate dropped to 10% from October's 10.2%.
The data geeks that compile these figures also announced that they had overstated the job losses in September and October by 159,000. Not only did payroll losses drop sharply, but leading indicators of employment also improved significantly. In particular, temporary help agencies added 52,000 jobs last month following a gain of 40,000 in October. Businesses tend to ramp up their temp numbers before adding permanent headcount to their payrolls.
On its face the story from the labor sector is that the worst of the recession appears to be behind us. The recent flow of macro-economic data continues to paint a developing picture of the economy in transition from a deep recession to a modest recovery. That's terrific news for the millions of American's who yearn to return to the labor force -- and overall I think it is good news for single-family mortgage originations.
Even though improving statistics from the labor sector will likely encourage the Fed to be more vocal about an exit strategy from their sharply mortgage market friendly monetary policy strategies - the inevitable rise in mortgage interest rates will probably be largely muted by a return of consumer confidence which subsequently will likely lead to improved demand for homeownership.
Which is worst - an economy in which a loaf of bread costs $1.00 and a man/woman happens to have a $1.00 to spend on bread - or an economy is which a loaf of bread cost 25 cents and a man/woman has no money at all to spend on bread or anything else?
Looking ahead to next week Uncle Sam returns to the credit market looking to borrow $70 billion or so in the form of 3-year notes on Tuesday, 10-year notes on Wednesday and concluding with a 30-year bond offering on Thursday. The only major economic report on tap is Friday's 8:30 a.m. ET release of the November Retail Sales figures.
Employers cut far fewer jobs than expected last month in the best showing for the labor market since the recession began in December 2007. According to government figures, the economy shed only 11,000 jobs last month - far fewer than the 130,000 drop in the November headline nonfarm payroll figure most economists had anticipated. The national jobless rate dropped to 10% from October's 10.2%.
The data geeks that compile these figures also announced that they had overstated the job losses in September and October by 159,000. Not only did payroll losses drop sharply, but leading indicators of employment also improved significantly. In particular, temporary help agencies added 52,000 jobs last month following a gain of 40,000 in October. Businesses tend to ramp up their temp numbers before adding permanent headcount to their payrolls.
On its face the story from the labor sector is that the worst of the recession appears to be behind us. The recent flow of macro-economic data continues to paint a developing picture of the economy in transition from a deep recession to a modest recovery. That's terrific news for the millions of American's who yearn to return to the labor force -- and overall I think it is good news for single-family mortgage originations.
Even though improving statistics from the labor sector will likely encourage the Fed to be more vocal about an exit strategy from their sharply mortgage market friendly monetary policy strategies - the inevitable rise in mortgage interest rates will probably be largely muted by a return of consumer confidence which subsequently will likely lead to improved demand for homeownership.
Which is worst - an economy in which a loaf of bread costs $1.00 and a man/woman happens to have a $1.00 to spend on bread - or an economy is which a loaf of bread cost 25 cents and a man/woman has no money at all to spend on bread or anything else?
Looking ahead to next week Uncle Sam returns to the credit market looking to borrow $70 billion or so in the form of 3-year notes on Tuesday, 10-year notes on Wednesday and concluding with a 30-year bond offering on Thursday. The only major economic report on tap is Friday's 8:30 a.m. ET release of the November Retail Sales figures.
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