Austin Mortgage Blog

Archive for April, 2009

Given the cross currents, the market look likely to balance both economic and humanitarian issues, allowing mortgage pricing to hold steady or improve just a little

Just when you think you’ve got the list covered:

• Tarp,
• TALF,
• FOMC,
• Corporate Earnings,
• GM in and out of BK,
• FOMC,
• Treasury Auctions,
• Bank Stress tests,
• and Housing Data,

…someone gave us a new worry: Swine Flu.  Markets around the world have a heightened awareness of the disease, one which has claimed over 100 lives and effected many more.  Thoughts of how SARS took so many human lives and accumulated severe financial losses in Asia, etc., comes to mind.  The White House is concerned and so are the markets, sending stocks into the red and sparking a flight to quality bid in treasuries and MBS.

Currently, the 10 year note is up 16/32’s (yield 2.94%), mortgage backs up 9/32’s, and stocks down 71 points on the big board.  Just goes to show you that when you think all the animals are in the barn, the pigs sneak out and make a mess.

No news today but the week ahead will provide for high anxiety and volatility.  Housing data via the Chase Shiller Index, Consumer Confidence, and the start of the FOMC meeting tomorrow.  Conclusion of FOMC meeting on Wednesday with any change and/or policy statement due at 1:15 pm cst along with the Treasury Refunding Announcement (8:00 am cst).  Thursday’s usual subjects will be Weekly Unemployment Claims, Employment Cost Index, Personal Income and Outlays, Chicago Purchasing Managers Report, and the ISM report of Milwaukee.  Friday, will not only be the first day of May, it will release Factory Orders, ISM Index, and Domestic Vehicle Sales for April.  For the technical trade, other than the chart looking drunk, we have come back towards neutral as neither bear nor bull can get control.

Given the cross currents, the market look likely to balance both economic and humanitarian issues, allowing mortgage pricing to hold steady or improve just a little.  More on the FOMC tomorrow.

Keep one eye on stocks (now up 54 on the big board) as mortgage pricing sits on the other side of the teeter totter

Corporate earning woes continue on Wall Street today with Caterpillar cutting its total year projections in half and a number of regional banks; Market Street, Huntington, Northern Trust, and Regions providing less than stellar results.  Treasury Secretary Geithner is on the hill, talking about most banks being well capitalized but that economic uncertainties and the impact of “legacy assets” (sick and hurt paper) has created an environment of great uncertainty.  Early trading pushed stocks lower and bonds/mortgage backs higher.  Currently, that trend is reversing with the 10 year note now off 3/32’s and MBS unchanged.  Since we priced up 4/32’s on the 4.50% FNMA coupon, a little pricing pinch is right around the corner.  Technically, the buying today failed to build on a minor probe above the trend line.  Selling however has been restricted to the lower half of yesterday’s highs, putting the market in more of a “neutral” mode.  Keep one eye on stocks (now up 54 on the big board) as mortgage pricing sits on the other side of the teeter totter.

Mortgage pricing today has been more about timing than anything

Meant to post yesterday:

Today’s stock swoon, due to  financial sector led selling, has given us a little boost this morning.  Earlier today, Leading Economic Indicators fell .3% to 98.1, .1% worse than expectations.  The board’s lagging indicator index fell .4% as only one of the seven components advanced.  While stock market gains, money supply liquidity, and low yields help this report, building permits and the index of supplier deliveries provided the overwhelming drag.  Fits well with our bias of the economy bumping along the bottom.  For the most part, light volume has been the theme to start the week. 

Stocks are off 250 points on the big board as B of A reported better than expected earnings but revealed escalating losses in commercial MBS and commercial/industrial loans.  Actually, the market is not sure whether Ken Lewis (CEO) is overly optimistic or just lying.  All of the above has given the 10 year note a goose higher, trading up 23/32’s to yield 2.85%.  Mortgage backs are along for the ride, up 5/32’s as I type. 

Pricing today has been more about timing than anything.  Late Friday, the market sold off to levels which were not priced into most price sheets.  In other works, mortgage pricing was “rich” to the street.  Today’s gains are nice but not enough to recoup the late day losses on Friday.  We would however, be another .125 to .25 worse today without our current rally.  Hope that makes sense.  Technically, the chart looked like a bad dog on Friday, closing with sell signals and bearish trends on most time frames.  The stability and gains today are challenging those bearish signals, including trend intensity.  We are now forming an inside day up, bullish in nature  but not a rejection of the larger time frame bear move.  To endorse a new bullish trend, the market will need to close at or below 2.81% on the note.  A trade above 3.0% will confirm that bears are in control and higher mortgage rates in vogue.  As you can see,  currently we are in no man’s land at 2.85%.  Good time to remain cautious.

Mortgage pricing will worsen TODAY

Just a heads up as the 10 year note is off 30/32’s (yield 2.94%) and MBS off 10/32’s.  Any close in futures 2:00 pm cst or cash 4:00 pm cst  at current levels will not look pretty on the chart.  Price change for the worse is around the corner…

With monthly, weekly, and daily charts mixed, expectations are for this level to hold and return towards the middle of the range. This would improve mortgage pricing should it occur. Trouble is, correlations between chart work, cash trading, Fed manipulation, and policy maker mumbo jumbo are nonexistent. In other words, the best advice is to form a plan and execute or, give an hour or two, the opportunity may be gone.

Both the market and the weather are stormy in Austin. Both bonds and stocks are in the red.  The only news of the day has been the Michigan Sentiment Survey, posting a gain of 4.6 points to 61.9.  Current conditions rose 3 points to the highest level since December 2008 while future expectations rose 5 points, the best we’ve seen since September 2008.  The survey said that 9 out of 10 Americans think the economy is in a recession but 39% are expecting improvement in the months to come. 

Overall, the economy, whether it is a mirage or not, seems to be stabilizing.  At least this is the markets, especially the stock market’s perception of a shift towards good fortune.  Notes, bonds, and mortgage backed securities are feeling the pressure of continued supply and limited buyers, allowing a retreat towards higher yields and worsening mortgage pricing. 

From the Fed’s point of view, they would like to keep the 10 year note in a range of 2.50% to 3.0%, their comfort zone to stimulate housing.  Currently trading at 2.91%, we are at the low side of the range(futures chart) and testing the 100 and 40 day moving averages.  This market has not traded below (100 day MA) since September of last year.  To say the least, it is an important “line in the sand”. 

With monthly, weekly, and daily charts mixed, expectations are for this level to hold and return towards the middle of the range.  This would improve mortgage pricing should it occur.  Trouble is, correlations between chart work, cash trading, Fed manipulation, and policy maker mumbo jumbo are nonexistent.  In other words, the best advice is to form a plan and execute or, give an hour or two, the opportunity may be gone.  

As we speak, the 10 year note is off 18/32’s (yield 2.90%), mortgage backs off 6/32’s, and stocks trading either side of unchanged.  While we expect the market to hold, a trade above 2.92% would throw a monkey wrench into that plan as the chart would look to 3.0% as the next target.  Careful out there and have a great weekend.

Just in the last hour, sellers have entered and without the Fed in the market buying, the bears are in control.

Sellers are leaning on the market, giving the fast money types little resistance since the Fed is not in today’s market.  

• Weekly Unemployment Claims fell 44K to 610K, well below market estimates for a 655K print.  
• Continuing Claims rose once again to a record 6.022 million.  

We don’t see this as any huge improvement on the employment front but more of an anomaly due to quarter end and spring break. 

• March Housing Starts were also released, down 10.8% at an annual rate of 510,000 units.  
• Building Permits fell to a record low as well.  
• Regions across the country were mixed with the South down 16.8%, the West off 26.3%, the Northeast rose 6.3%, and the Midwest was up 15.9%.  No joy in Mudville in this report.  
• The Philly Fed Survey was last on today’s docket, improving 5.6 points to a minus 24.4.  Once again an improvement but still contracting.  
• For most of the day, mortgage backs had been hanging round unchanged or down 1/32^nd.  Just in the last hour, sellers have entered and without the Fed in the market buying, the bears are in control. 
• Currently, the 10 year note is off 20/32’s (yield 2.84%), mortgage backs off 7/32’s, and stocks up 30 something on the Dow.  

Just yesterday, we were talking about a good looking chart that took out and settled below 2.81%.  Goes to show you how fickle and dangerous this market is.  Turn on a dime and give you two cents change.

We expect a good close (below 2.81%) and see the market as neutral/bullish near term, trading at current levels or a little better near the center of the range

Happy Tax Day!  CPI, inflation at the consumer level, fell .1% while the core index was up .2%.  Forecasters were looking for a plus .1% print on the headline number and a plus .1% number within the core sector.  Falling food, energy, and transportation costs more than offset the a rise in goods and services, presenting an overall benign inflation report.  At least, for now. 

The Empire State (New York) Manufacturing Index improved this morning from -8.23 to -14.65.  The index shows improvement yet is still contracting in that region of the country.  Another measure we watch is what’s called the TIC report.  This report measures net foreign capital investment in long dated securities ( 10 year note through 30 year bonds).  The measure rose 5 billion and even China increased their holdings of our debt by 4.6 billion.  Maybe Treasury Secretary Geithner has been  sucking up to them. 

The NAHB housing index was also released, up 5 points to 14.  This is the highest level since October 2008 and shows signs of encouragement for a bottom in housing.  Last but not least, the Fed’s Beige Book was just released.  Although economic conditions  continue to deteriorate, 5 Fed districts reported a moderation in the pace of decline.  Complete text attached.  Overall, trading volume is light with the 10 year note currently up 4/32’s (yield 2.77%), mortgage backs up 2/32’s, and stocks up 17 points on the big board.  Technically, we like the fact that 10 year notes (on the chart) took out the 2.81% level (now trading at 2.77%). 

Bulls need to hold below that level (2.81%) to retain control.  The cash close (4:00 pm cst) will be important and outside of an surprise selling into the late afternoon, will be a nice win for the bulls.  We expect a good close (below 2.81%) and see the market as neutral/bullish near term, trading at current levels or a little better near the center of the range.

Bonds, notes and mortgage backs have rallied this morning as stocks take a breather from their 25% bear market pop

Bonds, notes and mortgage backs have rallied this morning as stocks take a breather from their 25% bear market pop.  Volume on all fronts, equities and fixed income are light as most of the world’s markets are closed for “Easter Monday.”  Hope you and yours had a nice weekend as well. 

As we mentioned, stocks have been off as much as 100 points today, currently down 80 on the big board.  Profit taking, earnings season in effect, and reports of a surgical bankruptcy ahead for GM are all weighing on that market.  Fed buying, the lack of treasury auctions this week, and the general notion that the Fed will continue to be aggressive any time the 10 year note closes in on 3.0% seems to be in our favor today. 

Currently the note is up 18/32’s to yield 2.86%, mortgage backs are up 5/32’s, and stocks as we mentioned are off 80 something on the big board.  The week ahead will hit the ground running tomorrow with the release of PPI (inflation at the wholesale level), Retail Sales (very important to watch), Housing Index, and Business Inventories.  Wednesday’s plate will be full of CPI (inflation at the consumer level), New York Manufacturing Survey, Industrial Production/Capacity Utilization, and the Fed’s Beige Book, a snap shot of the economy provided for each Fed district. 

Thursday’s data will include Weekly Claims, New Residential Construction, and the Philly Fed Index.  Friday will end the week with the Michigan Sentiment Survey.  Technically, the 100 day moving average has provided good support for the 10 year note.  Now that we are re-entering the middle of the range, a test of 2.83% (cash yield on the 10 year) is likely.  Taking out that level (trading below 2.83%0 would be quite bullish but looks unlikely due to mixed trend signals.   Also, the data due for release can hurt or help us as well.

Great job by those borrowers who locked in your Austin mortgage rate yesterday. You caught the market at its best level in quite some time.

Says she had enough of me

The opening words to a great song by George Strait, seems to be the way the market treats us mortgage bankers lately.  After a ½ point rally late Tuesday and Wednesday, Thursday’s market has taken a U turn, giving back most of those gains.  Weekly claims may have had something to do with it, falling 20K to 654K.  Continuing Claims however rose 95K to a new record 5.84 million. 

Wells Fargo pre-announced earnings, doubling the streets consensus of .26 cents a share.  That got stocks rolling, adding pressure to treasuries and mortgage backed securities.  For the most part, money flows are mixed with below average volume, typical of a pre-holiday weekend trade.  Overall, the market is still neutral but with a little more of a bearish bias.  Just goes to show you how fast this market moves.  Great job by those borrowers who locked in your Austin mortgage rate yesterday.  You caught the market at its best level in quite some time.  With volatility at such a high level, moves like yesterday and today can come from nowhere, creating violent swings.

Another sign of stabilization in a recessionary economy

Mortgage backed securities rallied in late afternoon trading yesterday, then proceeded to follow the trend higher (additional rally) early this morning.  Applications for mortgages in the latest MBA survey, jumped 11.1% on the purchase index and 3.2% for refinances.  Not bad as a little stability and hope seems to be entering the market.  Same thing with Wholesale inventories which fell twice as much as estimated (-1.5%), showing signs of a stronger draw down which should lead to a pickup in manufacturing activity. 

Another sign of economic stabilization.  Big news on the builder front today comes from Pulte Homes which said it will buy Centex Corp. for 1.3 billion in stock.  This would create the largest homebuilder in the U.S.  M & A activity (merger and acquisition) starting to pick up.  Another sign of stabilization in a recessionary economy.  The chart work on the 10 year note has had a bullish benefit from the “goose” higher, now leaning to the bullish side from oversold conditions.  It is not enough however to make the larger time frame, bearish trend, surrender.  In other words, take advantage of the rally as they are fickle and far between.  Currently, the 10 year note is up 5/32’s (yield 2.89%), mortgage backs are up 5 to 8/32’s, depending on note rate, and stocks are up 72 points on the big board.