Price volatility in the mortgage market will be increasingly exaggerated as more and more market participants "close-the- books" on 2010. With bonus checks already cut - few traders will see reason to increase their risk positions before the New Year.
Against this backdrop today's modest decline in the initial weekly jobless claims was nothing more than a temporary distraction for traders. Early news from the housing sector did nothing but confirm the general consensus among market participants that housing starts and new housing construction in general are going nowhere anytime soon.
The $858 billion tax-cut extension plan that passed the Senate yesterday has now moved to the House of Representatives and may be presented for a vote by the end of the day. One would think the likely passage of this bill is already priced into the market - but as squirrely as trading activity as been of late - there is a risk that this event could take another sizable hunk out of current rate sheet prices.
Thursday, December 16, 2010
Tuesday, December 14, 2010
The mortgage market beat a hasty retreat back to the price lows of the month this morning after reports on November retail sales and producer prices implied economic growth accelerated sharply in the current quarter. A stronger economy tends to push capital toward riskier assets like stocks at the expense of safe-haven assets like mortgage-backed securities.
The Commerce Department reported this morning that retail sales increased a solid 0.8%, advancing for a fifth straight month. November's gain came on top of an upwardly revised 1.7% gain in October. Excluding autos, growth was even faster in November, up 1.2%, after running at a slower pace in prior months. Consumers' spending behavior clearly shows increased optimism over the course of the last ninety-days. While the improved consumer outlook is good news for the prospects of future economic growth - it tends to be bad news for the potential of notably lower mortgage interest rates.
In a separate report the Labor Department said wholesale costs in November rose 0.8% -- the largest month-over-month increase in the past eight months. The big gain in the headline number was largely attributable to higher gasoline, heating oil, and fruit prices. Excluding the more volatile food and energy costs, the "core rate" of inflation at the producer level posted a more modest 0.3% gain. The trend trajectory of consumer demand may be reaching a high enough point that wholesalers may finally be able to push through their increased costs in the form of price increases. The mere whiff of these inflation implications were enough to pressure mortgage interest rates higher.
The last scheduled meeting of the Federal Open Market Committee got underway this morning at 8:30 a.m. and will conclude with the release of their post-meeting statement at 2:15 p.m. this afternoon. The message from the Fed is expected to include an acknowledgment that the economic outlook has improved over the past three months - but not at strong enough pace that committee members will likely consider scaling back their current $600 billion "QE2" spending spree. This event will not likely exert any influence on the direction of mortgage interest rates today.
The Commerce Department reported this morning that retail sales increased a solid 0.8%, advancing for a fifth straight month. November's gain came on top of an upwardly revised 1.7% gain in October. Excluding autos, growth was even faster in November, up 1.2%, after running at a slower pace in prior months. Consumers' spending behavior clearly shows increased optimism over the course of the last ninety-days. While the improved consumer outlook is good news for the prospects of future economic growth - it tends to be bad news for the potential of notably lower mortgage interest rates.
In a separate report the Labor Department said wholesale costs in November rose 0.8% -- the largest month-over-month increase in the past eight months. The big gain in the headline number was largely attributable to higher gasoline, heating oil, and fruit prices. Excluding the more volatile food and energy costs, the "core rate" of inflation at the producer level posted a more modest 0.3% gain. The trend trajectory of consumer demand may be reaching a high enough point that wholesalers may finally be able to push through their increased costs in the form of price increases. The mere whiff of these inflation implications were enough to pressure mortgage interest rates higher.
The last scheduled meeting of the Federal Open Market Committee got underway this morning at 8:30 a.m. and will conclude with the release of their post-meeting statement at 2:15 p.m. this afternoon. The message from the Fed is expected to include an acknowledgment that the economic outlook has improved over the past three months - but not at strong enough pace that committee members will likely consider scaling back their current $600 billion "QE2" spending spree. This event will not likely exert any influence on the direction of mortgage interest rates today.
Monday, December 13, 2010
Investors will look to the post-meeting statement from the Federal Open Market Committee tomorrow together with the snapshot of current inflation pressures at the wholesale and consumer level for cues to the likely direction of mortgage interest rates. If traders are comfortable with the level of inflation already priced into the mortgage market there is a better than even chance mortgage rates will creep fractionally lower. On the other hand, in the off-chance the data reveals inflation is running at a stronger than expected pace - look for mortgage interest rates to continue to move higher.
The "wildcard" of the coming week is the pending vote on extending the Bush era tax-cuts as well as preserving the emergency unemployment benefit program -- both originally scheduled to expire on December 31st. The "rumor mill" suggests a congressional decision may come as early as Monday. If the measure passes keep your fingers crossed that the majority of investors feel that the surge in inflation -- combined with the spike in the national debt load this piece of legislation is expected to create -- has already been well priced into the credit markets. If not, the upward spiral of mortgage interest rates will almost certainly continue - no matter what the data from the November Producer and Consumer price indexes might otherwise indicate.
The "wildcard" of the coming week is the pending vote on extending the Bush era tax-cuts as well as preserving the emergency unemployment benefit program -- both originally scheduled to expire on December 31st. The "rumor mill" suggests a congressional decision may come as early as Monday. If the measure passes keep your fingers crossed that the majority of investors feel that the surge in inflation -- combined with the spike in the national debt load this piece of legislation is expected to create -- has already been well priced into the credit markets. If not, the upward spiral of mortgage interest rates will almost certainly continue - no matter what the data from the November Producer and Consumer price indexes might otherwise indicate.
Friday, December 10, 2010
Treading water.
Mortgage investors have largely gone to the sidelines today - waiting for the dust to clear from this week's roughly 200 basis-point price drubbing.
Investors will look to the post-meeting statement from the Federal Open Market Committee next week Tuesday together with the snapshot of current inflation pressures at the wholesale and consumer level for cues to the likely direction of mortgage interest rates. If traders are comfortable with the level of inflation already priced into the mortgage market there is a better than even chance mortgage rates will creep fractionally lower - probably at least into the end of the year. On the other hand, in the off-chance the data reveals inflation is running at a stronger than expected pace - look for mortgage interest rates to continue to move higher.
The "wildcard" of the coming week is the pending vote on extending the Bush era tax-cuts as well as preserving the emergency unemployment benefit program -- both originally scheduled to expire on December 31st. The "rumor mill" suggests a congressional decision may come as early as Monday. If the measure passes keep your fingers crossed that the majority of investors feel that the surge in inflation, combined with the spike in the national debt load this piece of legislation is expected to create, has already been well priced into the credit markets. If not, the upward spiral of mortgage interest rates will almost certainly continue - no matter what the data from the November Producer and Consumer price indexes might otherwise indicate.
Mortgage investors have largely gone to the sidelines today - waiting for the dust to clear from this week's roughly 200 basis-point price drubbing.
Investors will look to the post-meeting statement from the Federal Open Market Committee next week Tuesday together with the snapshot of current inflation pressures at the wholesale and consumer level for cues to the likely direction of mortgage interest rates. If traders are comfortable with the level of inflation already priced into the mortgage market there is a better than even chance mortgage rates will creep fractionally lower - probably at least into the end of the year. On the other hand, in the off-chance the data reveals inflation is running at a stronger than expected pace - look for mortgage interest rates to continue to move higher.
The "wildcard" of the coming week is the pending vote on extending the Bush era tax-cuts as well as preserving the emergency unemployment benefit program -- both originally scheduled to expire on December 31st. The "rumor mill" suggests a congressional decision may come as early as Monday. If the measure passes keep your fingers crossed that the majority of investors feel that the surge in inflation, combined with the spike in the national debt load this piece of legislation is expected to create, has already been well priced into the credit markets. If not, the upward spiral of mortgage interest rates will almost certainly continue - no matter what the data from the November Producer and Consumer price indexes might otherwise indicate.
Tuesday, December 7, 2010
Tuesday, December 7, 2010
Thin trading conditions are contributing heavily to this morning's sell off in the mortgage market.
The selling pressure is largely being created by the credit market's negative reaction to the announcement Congress has reached a compromise that will allow extending tax rates and jobless benefits until 2012. According to data compiled by Richard Rubin and Peter Cohn, writers for "Bloomberg.com" - extending all income tax rates for two years, along with renewal of business tax breaks, and renewal of the expanded unemployment insurance program could add about $750 billion to the federal deficit over the next decade. A rising federal debt burden at a time when the government's ability to service debt is deteriorating is not the "stuff" that lower mortgage interest rates are made of.
Credit markets are also under the shadow of more global events today.
The Irish parliament appears poised to pass a major austerity budget today and will likely pass a separate vote on social welfare measures on Thursday. If both measures are approved all conditions will have been met to enable Ireland to tap the $113 billion bailout package cobbled together by the European Central Bank and others. In the unlikely case one of these two measures fails to pass - the country would plunge into an even deeper fiscal crisis - an event that would compound growing contagion fears in the euro zone. A "no" vote" by the Irish parliament, should it come, will almost certainly cause capital to flee the uncertainties of euro zone for the relative safe haven of dollar denominated assets like Treasury obligation and mortgage-backed securities. Until the votes have been cast and tallied - I will continue to consider these two events to be mortgage market "wildcards".
Uncle Sam will be thrashing around in the credit market today looking to borrow $32 billion in the form of 3-year notes. This offering will likely draw decent demand - but not enough to create much of an overall improvement in investors' otherwise mortgage market unfriendly mindsets.
Looking ahead to the balance of the week the economic calendar is exceptionally light -- with little more than Thursday's initial weekly jobless claims number and October Wholesale Inventory data available for mortgage investors to chew on.
The selling pressure is largely being created by the credit market's negative reaction to the announcement Congress has reached a compromise that will allow extending tax rates and jobless benefits until 2012. According to data compiled by Richard Rubin and Peter Cohn, writers for "Bloomberg.com" - extending all income tax rates for two years, along with renewal of business tax breaks, and renewal of the expanded unemployment insurance program could add about $750 billion to the federal deficit over the next decade. A rising federal debt burden at a time when the government's ability to service debt is deteriorating is not the "stuff" that lower mortgage interest rates are made of.
Credit markets are also under the shadow of more global events today.
The Irish parliament appears poised to pass a major austerity budget today and will likely pass a separate vote on social welfare measures on Thursday. If both measures are approved all conditions will have been met to enable Ireland to tap the $113 billion bailout package cobbled together by the European Central Bank and others. In the unlikely case one of these two measures fails to pass - the country would plunge into an even deeper fiscal crisis - an event that would compound growing contagion fears in the euro zone. A "no" vote" by the Irish parliament, should it come, will almost certainly cause capital to flee the uncertainties of euro zone for the relative safe haven of dollar denominated assets like Treasury obligation and mortgage-backed securities. Until the votes have been cast and tallied - I will continue to consider these two events to be mortgage market "wildcards".
Uncle Sam will be thrashing around in the credit market today looking to borrow $32 billion in the form of 3-year notes. This offering will likely draw decent demand - but not enough to create much of an overall improvement in investors' otherwise mortgage market unfriendly mindsets.
Looking ahead to the balance of the week the economic calendar is exceptionally light -- with little more than Thursday's initial weekly jobless claims number and October Wholesale Inventory data available for mortgage investors to chew on.
Friday, December 3, 2010
Friday, December 3, 2010
A swing and a miss.
Economists and analysis around the world were expecting a much stronger set of November payroll numbers than the Labor Department delivered this morning.
As the markets closed yesterday, participants were braced for a headline November payroll figure as high as 200,000 and a national jobless rate of 9.6% or lower. The actual numbers showed that the economy only created 39,000 more jobs than it lost last month while the national jobless rate surged to 9.8%. The September and October numbers were revised higher by a collective 38,000 jobs. Investors also made note of the fact that average hourly earnings remained flat last month - an indication that the consumer may not be in as good as shape to drive economic growth in the first-half of 2011 as most observers have been anticipating.
Judging by price action in the credit markets in the couple of hours following the release of the November nonfarm payroll data it appears that most market participants are choosing to largely shrug-off today's weak story from the job market as nothing more than the growing pains of an economy in transition from recession to recovery.
Looking ahead to next week the economic calendar is exceptionally light with little more than Thursday's initial weekly jobless claims number and October Wholesale Inventory data available for mortgage investors to chew on. The trend trajectory of mortgage interest rates over the coming five business days will be most strongly influenced by the Treasury Department's three scheduled auctions - Tuesday's $32 billion 3-year note sale, Wednesday's $21 billion 10-year note auction and Friday's $13 billion 30-year bond offering. The 3- and 10-year note offerings will likely draw decent demand - but the 30-year bond sale has the potential to create some notable upward pressure on mortgage interest rates. Heads up.
Economists and analysis around the world were expecting a much stronger set of November payroll numbers than the Labor Department delivered this morning.
As the markets closed yesterday, participants were braced for a headline November payroll figure as high as 200,000 and a national jobless rate of 9.6% or lower. The actual numbers showed that the economy only created 39,000 more jobs than it lost last month while the national jobless rate surged to 9.8%. The September and October numbers were revised higher by a collective 38,000 jobs. Investors also made note of the fact that average hourly earnings remained flat last month - an indication that the consumer may not be in as good as shape to drive economic growth in the first-half of 2011 as most observers have been anticipating.
Judging by price action in the credit markets in the couple of hours following the release of the November nonfarm payroll data it appears that most market participants are choosing to largely shrug-off today's weak story from the job market as nothing more than the growing pains of an economy in transition from recession to recovery.
Looking ahead to next week the economic calendar is exceptionally light with little more than Thursday's initial weekly jobless claims number and October Wholesale Inventory data available for mortgage investors to chew on. The trend trajectory of mortgage interest rates over the coming five business days will be most strongly influenced by the Treasury Department's three scheduled auctions - Tuesday's $32 billion 3-year note sale, Wednesday's $21 billion 10-year note auction and Friday's $13 billion 30-year bond offering. The 3- and 10-year note offerings will likely draw decent demand - but the 30-year bond sale has the potential to create some notable upward pressure on mortgage interest rates. Heads up.
Thursday, December 2, 2010
Thursday, December 2, 2010
And now the waiting begins.
Tomorrow morning's release of the November nonfarm payroll report is almost anti-climatic following yesterday's dramatic sell-off in the mortgage market. The trigger for the pounding mortgage interest rates took yesterday was a stronger-than-expected report from payroll company ADP that showed a 93,000 gain in private payrolls. But that was yesterday.
Today the Labor Department reported initial claims for government unemployment benefits rose a stronger-than-expected 26,000 to a seasonally adjusted 436,000 during the week ended November 26th. This morning's data will have no bearing on tomorrow's much more important nonfarm payroll report because it fell outside of the survey period for the monthly number. It does appear that this morning's weekly initial claims data has caused investors to reconsider some of the "wild-eyed" whisper-numbers that created such a panic in the market yesterday. A reading of 436,000 suggests the labor market is firmer than it was a few months ago but not yet at the point where the unemployment rate will start falling on a consistent basis. Typically, a noticeable decline in the number of unemployed workers will occur when the seasonally adjusted claims readings are below 400,000.
Most analysts are now anticipating Friday's November nonfarm payroll headline will likely show the economy created 145,000 more jobs than it lost last month while the jobless rate remained at 9.6% for the third consecutive month. If the headline number matches or falls below the consensus estimate, and prior months' revisions don't climb dramatically higher, this report will likely prove to be supportive of the prospects for steady to fractionally lower mortgage interest rates. It will probably take a November headline payroll number greater than 150,000 and a national jobless rate of 9.5% or less to drive mortgage interest rates notably higher from current levels.
Tomorrow morning's release of the November nonfarm payroll report is almost anti-climatic following yesterday's dramatic sell-off in the mortgage market. The trigger for the pounding mortgage interest rates took yesterday was a stronger-than-expected report from payroll company ADP that showed a 93,000 gain in private payrolls. But that was yesterday.
Today the Labor Department reported initial claims for government unemployment benefits rose a stronger-than-expected 26,000 to a seasonally adjusted 436,000 during the week ended November 26th. This morning's data will have no bearing on tomorrow's much more important nonfarm payroll report because it fell outside of the survey period for the monthly number. It does appear that this morning's weekly initial claims data has caused investors to reconsider some of the "wild-eyed" whisper-numbers that created such a panic in the market yesterday. A reading of 436,000 suggests the labor market is firmer than it was a few months ago but not yet at the point where the unemployment rate will start falling on a consistent basis. Typically, a noticeable decline in the number of unemployed workers will occur when the seasonally adjusted claims readings are below 400,000.
Most analysts are now anticipating Friday's November nonfarm payroll headline will likely show the economy created 145,000 more jobs than it lost last month while the jobless rate remained at 9.6% for the third consecutive month. If the headline number matches or falls below the consensus estimate, and prior months' revisions don't climb dramatically higher, this report will likely prove to be supportive of the prospects for steady to fractionally lower mortgage interest rates. It will probably take a November headline payroll number greater than 150,000 and a national jobless rate of 9.5% or less to drive mortgage interest rates notably higher from current levels.
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