Austin Mortgage Blog

Posts Tagged ‘china’

Analyst Meredith Whitney expects U.S. economy to have rough 2nd half – if true, expect Austin mortgage rates to stay low into 2011

Last week, we anticipated today being a “no news” day, expecting the bond market would pick up right where it left off.  Not quite the case and a great reason to fear “headlines” at any time.  Over the weekend, China preempted the G-20 meeting, announcing that they will allow more flexibility with their currency (Yuan).  The move is very stock and global growth friendly as it would remove imbalances in manufacturing and exports.  Consequences of their actions have pushed the dollar lower and bonds, notes, etc. to higher yields.

Nothing huge here as the Dow is plus 107, 10 year note down 20/32’s (yield 3.29%), and mortgage backs off 7/32’s.  Potentially, this is big news but then again it is China.  Let’s just say traders have “trust” issues.  The week ahead will fire up tomorrow with Existing Home Sales, FHFA House Price Index, and day one of the FOMC meeting.  Wednesday, the FOMC concludes with any change in Fed Funds rate/monetary policy due at 1:15 pm cst.

New Home Sales will also be out in the morning.  Thursday’s data will release Durable Goods, Weekly Unemployment Claims, and the Kansas City Fed Survey.  We’ll end the week with final GDP Q1 and the Michigan Sentiment Survey.  This week’s data will be important as the focus will be on Housing, Unemployment, and the Fed.  All three seem to be the biggest drag on the economy.

In the “for what it’s worth” department, top analyst Meredith Whitney has a bearish call on equities (stocks) and expects the U.S. economy to have a rough second half.  If true, expect Austin mortgage rates to stay low into 2011. Technically, I completed my chart work on the cocktail napkin Friday night.  Bears have the advantage but only slightly, leading us to believe we’re trapped in a triangle pattern range trade.  Let’s call the market neutral and have great week.

China Reassures about European Debt

The economic data took a backseat to events in Europe again this week. Improved sentiment about the troubles in Europe influenced the willingness of investors to purchase riskier assets such as stocks, hurting bond markets. As a result, after dropping to the lowest levels of the year, Austin mortgage rates ended the week a little higher.

A report on Wednesday that China was considering a move to reduce its holdings of European debt rattled global financial markets. There had been speculation in recent weeks that China, with the largest pool of foreign exchange reserves in the world, might cut its exposure to European debt. Thursday, however, Chinese officials made rare public comments that China was not planning to make any changes to its portfolio of European investments. Relieved global investors responded by embracing riskier assets such as stocks and partially reversing the effects from a flight to safer assets, such as bonds and mortgage-backed securities (MBS), seen over the last few weeks.

This week’s news from the housing sector was mostly positive. April Existing Home Sales rose 8% to an annual rate of 5.77 million units, the highest level in five months. Inventories of unsold existing homes increased a little, but the median home price was 4% higher than one year ago. First-time buyers accounted for 49% of all existing home sales. April New Home Sales rose 15% to an annual rate of 504K units, above the consensus forecast of 425K, and the highest level since May 2008. The homebuyer tax credit helped boost sales before its April 30 deadline.

With Austin mortgage rates/pricing at the best levels of the year and the 10 year note hitting 2010 low yields, the time is right for borrowers to lock in their Austin mortgage rates

Just another day at the office; Dow off 250 points, Naz down 68 points, 10 year note up 1 point, and mortgage backs up 8/32’s. The markets are anything but normal.

Take for example this morning’s release of Weekly Unemployment Claims which rose 25K. Most thought the jobs situation was stabilizing. China seemed as though it’s growth would never slow. Now their slowdown is very real and the Shanghai Index chart (Chinese Stocks) has turned bearish. Greek’s have once again taken to the streets, looking for another bank to burn. Seems as though they are not in love with the austerity plan. When will Europe and our country for that matter figure out that when more people are riding in the wagon than pulling it, we have a problem. Off the soap box, on to the news.

The Weekly Claims number was a shocker. Analysts had expected a drop to 440K, not the 471K print. Continuing Claims dipped however, but not to the levels we were looking for. Not so good for the economy but good for Austin mortgage rates. Stocks are now in 10% correction mode from the highs. Another 5% is certainly possible. Leading Economic Indicators for April were also released, down .1%. The index fell for the first time in a year, adding insult to injury as far as stocks are concerned.

Last but not least, the Philly Fed Manufacturing Index rose 1.2% to 21.4. Looks like things are improving in the city of brotherly love. With Austin mortgage rates/pricing at the best levels of the year and the 10 year note hitting 2010 low yields, the time is right for borrowers to lock in their Austin mortgage rates.

We feel the market has priced in a ton of bad news. Not that it can’t get worse because we all know that’s possible. Just the same, it will take more and more negative news to drive the trade to lower yields. Given all of our oscillator work, we see a very overbought market. One that’s ripe for a correction. At the same time, until investors feel certain that the world will not come to an end, yields will not rise much. Perfect time for Austin borrowers to use the exclusive float down program offered by Max Leaman at PrimeLending Austin. Call Max at (512) 293-1239.

Even though this morning’s calendar has had its fair share of data, most markets have been quite with little volatility

Even though this morning’s calendar has had its fair share of data, most markets have been quite with little volatility.  Earlier today, the New York Fed’s Empire Manufacturing Index fell 2.05 points to 22.86.  The print was close to expectations with new orders up nearly 17 points and shipments plus 10 points.  Inventory rebuilding supported the number with unfilled orders, inventories, and employment all showing positive gains.  The proof will be if buyers take the new merchandise off the shelves.

Industrial Production/Capacity Utilization were also on the menu, up .1% and .2% in February.  This release had a heavy dose of weather related slow down, affecting construction and other outdoor occupations in its wake.  We would expect a much stronger number for March.

One of indexes we follow is the Treasury International Capital Flows or TIC data.  The index measures net acquisition of securities by foreign parties.  The data shows a slowdown of 33.4 billion in purchases for January.  This lagging indicator is important to our industry and to Uncle Sam’s debt.  China is till the top purchaser so let’s hope our Treasury Secretary and Google don’t tick em’ off too bad.

Technically, we are trading near the upper end of a narrow range.  The trade is constructive, holding gains of late last week.  With the FOMC meeting tomorrow ( 1 day meeting), we expect the market to stay quiet until the policy statement is released (1:15 pm cst tomorrow).  Currently, the 10 year note is off 3/32’s (yield 3.72%), mortgage backs off 2/32’s, and stocks off 35 points on the big board.

Fed Comments Push Mortgage Rates Higher

While investors began the week watching for fresh information about Greece and China, the Fed stole the spotlight on Wednesday with news that was unfavorable for mortgage markets, and Austin mortgage rates ended the week moderately higher.

The Fed currently has significant influence on mortgage rates. Over the last year, the Fed pushed mortgage rates lower by purchasing over $1 trillion in mortgage-backed securities (MBS). Wednesday, the Fed’s Plosser suggested that the Fed should begin selling those MBS “sooner rather than later.” Later that day, the Fed released the detailed minutes from the January 27 Fed meeting. The minutes revealed that “several” Fed officials favored starting the sale of the Fed’s MBS portfolio “in the near future.” Investors were not expecting that Fed MBS sales would begin any time soon. Quite simply, adding to the supply of MBS being sold means that yields would need to move higher to attract buyers. Since mortgage rates are largely determined by MBS yields, mortgage rates rose after the news.

Thursday, the Fed announced an increase in the discount rate, the emergency rate at which banks borrow money from the Fed. The Fed made clear that this in no way reflected a change in broader monetary policy or its economic outlook. This was simply a return to more normal levels for one Fed tool now that the financial crisis has eased. As a result, there was very little impact on mortgage rates. According to Fed officials, a move to begin to tighten overall monetary policy, which almost certainly would cause a significant reaction, is still expected to be at least several months away. The inflation data released this week continued to show low levels of current inflation, providing little pressure for the Fed to rush to take action.

Mortgage Rates Hold Steady

Global events in China and Greece had a significant impact on US mortgage markets this week, but in opposite directions. In addition, demand was much weaker than average for the 10-year and 30-year Treasury auctions, which pushed up yields. The net result was a slight increase in mortgage rates from last week.

A surprise announcement Thursday night that China raised bank reserve requirements helped mortgage markets and hurt the stock market. The increase is a form of monetary tightening which is intended to slow economic growth in China. This likely means that China will buy fewer exports from other countries, slowing economic growth globally. Slower expected economic growth reduces inflationary pressures, which is positive for mortgage yields.

In recent weeks, large fiscal deficits in Greece have caused speculation that the country will default on its government debt, which resulted in an investor flight to the relative safety of US bonds. This week, the news that Greece will receive economic aid from other European Union nations prompted investors to reverse this flight to safety by selling US bonds, moving yields higher.

While it caused little immediate reaction, on Wednesday Fed Chief Bernanke revealed monetary policy strategies which may have important long-term implications for mortgage markets. Bernanke released the text of a speech which provided more details about the Fed’s planned methods to tighten monetary policy when the economy has gained enough strength. One of the things the Fed intends to do is sell its portfolio of mortgage-backed securities (MBS). Due to concerns about disrupting mortgage markets, however, Bernanke suggested that this will be one of the last measures taken to tighten policy, and it will be done very gradually.

Week Ahead

The most significant economic data next week will be the monthly inflation reports. The Producer Price Index (PPI) focuses on the increase in prices of “intermediate” goods used by companies to produce finished products and will come out on Thursday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Friday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, Industrial Production, an important indicator of economic activity, will be released on Wednesday. The FOMC Minutes from the January 27 Fed meeting and Housing Starts are also scheduled for Wednesday. Import Prices, Leading Indicators, and Philly Fed will round out a busy week. In addition, the Treasury will announce the size of upcoming auctions on Thursday. Mortgage markets will be closed on Monday for Presidents Day.

Austin Mortgage Rates Improve, Stocks Fall

While the economic data released this week had little impact, mortgage rates were heavily influenced by two big stories. One was an announcement that China will take steps to slow its economic growth and the other was President Obama’s proposed new restrictions on the activities of financial institutions. Both measures are expected to lead to slower economic growth in the US, which hurt the stock market but helped fixed income markets. As a result, mortgage rates ended a little lower. During the week, China released a report showing that its Gross Domestic Product (GDP) grew at an 8.7% pace in 2009. Rapid growth generally leads to higher inflation. In an effort to slow its economy and prevent inflation, China announced that it is going to curb bank lending. China currently has the third largest economy and is responsible for a significant percentage of global economic growth, so the effects of a slowdown in China will be felt around the world. In the US, President Obama proposed to limit the size and activities of large banks to reduce the risks to the financial system as a whole. If passed by Congress, this too would lead to slower growth for many large US financial services firms. The potential for slower economic growth and the resulting reduction in inflationary pressures was favorable for mortgage rates. To build capital and reduce risk, the FHA announced that it will raise insurance rates and tighten credit score requirements. The major changes include increasing upfront premiums from 1.75% to 2.25%, reducing the maximum seller contribution from 6% to 3%, and increasing the level of FICO scores from 500 to 580 below which a down payment of 10% is required. At this point, the expected timing of the upfront premium increase will be in the spring, and the other changes will take place over the summer.

What is catching trader’s eyes this morning is China and their latest release of GDP

Weekly Unemployment Claims jumped unexpectedly by 36K to 482K.  Continuing Claims came in at 4.599 million, nearly unchanged over the past two weeks.  Dow Jones reported that the spike in Weekly Claims was due in part to a backlog of Christmas and New Year’s filings.  They are calling it an “administrative thing, not an economic thing”.  I’m not so sure about that when you look at Emergency Claims jumping 652K.  They continue to soar due to recent extension changes (new claimants) while those already on emergency benefits are not coming off the roles.

Leading Economic Indicators were also released, up 1.1% versus the expected plus .9%.  8 of the 10 components indicated growth via month on month comparisons.  The trouble with this data is that it is rear view mirror stuff, information that we already know and is priced into the market.  When its release, the market blinks and moves on.

What is catching trader’s eyes this morning is China and their latest release of GDP.  The plus 10.7% has the Dragon breathing fire and Wall Street worried about overheating.  Given the data, China will need to curb growth sooner than later which will certainly have an effect on our economy.  Stocks are taking a beating, down over 200 points.  Metals, oil, commodities, and financials are all to the downside.  Financials are really spooked as the Prez just held a news conference about limited bank risk taking.

The good news is that for every stock market whipping, money always runs for cover in the bond market.  Even though the 10 year note looks a little tired, given the rally over the past few days and upcoming auction supply next week, the 10 year has powered through resistance and now trades a 3.61% yield.  Mortgage backs have had a good day as well, up 5/32’s on the current coupon.  Bullish signals are still active on daily charts but open interest has been falling.  This means that as we advance (rally), volume is declining, usually a sign that a top or at least a stall is near.  Makes sense into next week’s auction supply.

The other component that has kept mortgage pricing from any radical improvement is that spreads between our paper and the 10 year note are widening.  Underlying reason here is the backlog of foreclosed homes that is overshadowing a recovery in housing.  Servicers are holding inventory or renting it, reluctant to push it on the market for fear of further depressing values.  We’re going to deal with this throughout 2010.

Low Inflation and Strong Auctions

While Austin mortgage rates climbed in December, they have decreased during the first two weeks of January. A combination of factors was favorable for mortgage markets this week. Low inflation, weaker than expected economic growth data, and strong demand for the Treasury auctions all helped Austin mortgage rates move a little lower.

One primary long-term concern for mortgage investors is that the enormous level of stimulus intended to boost the economy will lead to higher inflation. Inflation erodes the value of fixed income investments, so future inflation expectations are a major determinant of bond values, including mortgage-backed securities (MBS). Inflation has not been a factor in the short-term, however, as virtually all of the data in recent months has shown it to be low. This week, the Consumer Price Index (CPI), the most widely watched inflation indicator, showed that core inflation rose only 1.8% from one year ago. The Fed’s comfort zone is for core inflation to rise at a 1.0% to 2.0% annual rate, and Fed forecasts are for low core inflation this year. Mortgage investors will be watching these levels closely, and any surprises down the road could push Austin mortgage rates higher.

A second major long-term issue for mortgage investors is that the vast increase in the supply of government debt will exceed the demand. So far, both foreign and domestic demand has remained strong. This week’s Treasury auctions saw very solid demand, particularly for the longer-term 10-yr and 30-yr securities, which are the most comparable to MBS. The cause for concern is that some important buyers, including China, have been hinting that they will reduce their Treasury purchases if the US doesn’t display more fiscal discipline. If demand were to fall, then yields would need to rise to attract investors, which would not be good for mortgage rates.

October Housing Starts fell 10.6%: some have blamed the fall on uncertainty over the 8K first time home buyers stimulus while others point to a consumer who is unemployed and over budget

CPI was suppose to be the day’s headliner but Housing Starts stole the show.  While CPI, inflation at the consumer level, was in line with expectations (up .3% with the core index up .2%), October Housing Starts fell 10.6% to 529k units (annualized).  The decline was in large part due to a 33.3% drop in multi-family homes (5 units or more), setting a new record low.  Building Permits fell as well, down 4.0% to 552K.  Every region in the country took a dip with the Northeast leading the way (down 9.6%).  The best performing region was the wild West, off 5.9%.  Some have blamed the fall on uncertainty over the 8K first time home buyers stimulus while others point to a consumer who is unemployed and over budget.

The MBA Purchase Index reflects the latter with new applications off 4.7% even though interest rates are low.  Reinforces our belief that the Fed will continue to buy mortgage backed securities, helping to keep mortgage rates low into the new year.  Market reaction to all of the above has been a bit choppy.  Mortgage backs were down as much as 10/32’s this morning, in line with fast money selling of treasuries.  We have started to recover but are still off 6/32’s.  Stocks opened slightly lower, then accelerated to the downside but have now cut their losses in half (Dow down 37 points).  The dollar index is once again on the slide, falling below 75 after yesterday’s brief, dead cat bounce ( no offence cat lovers).  The slide has everything to do with the Obama Administration trying to convince the Chinese to let the Yuan appreciate, helping American exports.  Fat chance given their (China’s) treasury and real estate holdings in the U.S.

Technically speaking, the market continues to rattle around within the confines of a bullish upward sloping trend channel.  Most oscillators, including trend intensity are giving bullish reading yet the chart fails to make new highs.  This is somewhat of a concern so we need to be careful.  That said, the onus is still on the bears to take control which just hasn’t happened.  We like the market but want to see a new high (lower yield on the 10 year) by week’s end.