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Posts Tagged ‘Consumer Confidence’

Austin mortgage borrowers are encouraged to lay a little defense until the dust settles Thursday afternoon

In what looks to be a repeat of yesterday, stocks took off early this morning on the heels of DuPont’s great quarter and the Case Shiller Home Index coming in better than expected.

First on DuPont; all divisions of their business has double digits gains and revised guidance higher for the 3^rd and 4^th quarter.  Even their overseas sales were up over 30%.  Not bad.

Next came the housing numbers, up 4.6% on the 20 city index and up 5.4% on the 10 city index.  Charlotte and Las Vegas were the only not so bright spots across the county.  After the release of this dynamic duo, optimism started to spread.  Even the Euro zone banks (Deutsche in particular) seemed to be improving with the German Banking giant reporting a 6.2% gain in net profits.

Just as the light at the end of the tunnel got brighter, Consumer Confidence hit the screen, down more than expected to 50.4. The 4 point decline points to deteriorating future expectations and continued job worries.  The Richmond Fed survey hit about the same time, piling on as the index fell 7 points.  After that pair, stocks dropped and bonds/notes/ and mortgage backs made a comeback to unchanged.  With volatility what it is, the numbes are changing once again.

Stocks are currently plus 25 points, 10 year notes down 15/32’s, and mortgage backs (low note rates) are off 4/32’s while slightly higher rates are off 2/32^nd.  Technically, we see caution in the charts, especially ahead of the 12:00 cst 2 year note auction.  Every time we try to rally we get low volume and no follow through.  Tell tale sign that the market is neutral best case.  On the positive side, we are at good support, a target we’ve been looking for as the market reversed (good support is 3.05% to 3.08%).  Given all of the above, our bias is neutral/defensive, waiting to see what level of participation gets involved on the 2 year note auction.

Keep in mind that we have 39 billion of 5 year notes tomorrow and 29 billion of 7’s on Thursday’s auction block.  We anticipate pressure on mortgage pricing until we get though all the supply (auctions).  At that time, expectations are for the market to work it’s way back into the middle of the range (improve pricing) as Austin mortgage interest rates will continue to stay low.  Slow employment growth, soft housing, and weak consumer confidence, in our opinion, trump good earnings and future revenue growth on blue chip companies that continue to hoard cash.  Austin mortgage borrowers are encouraged to lay a little defense until the dust settles Thursday afternoon.

Short term, Austin mortgage borrowers are encouragerd to stay defensive

It’s early on Monday morning and the market already looks like Ventura Highway.  Stocks were lower in pre-market trading (bonds higher) until Fed Ex came out and revised 3^rd quarter earnings (quarter ending 8/31) up 20 cents a share and pushed guidance higher for the remainder of the year.  Stocks turned around, going positive and as a consequence, bonds, notes, and mortgage backs took a dip.

Then along came New Home Sales, expected to be 320K annualized units.  The print was much better than that, up 24% to 330K units.  Stocks got another boost (now up 68 on the big board) as fixed income instruments (such as mortgage backs) dipped a little deeper.  Currently, the 10 year note is off 10/32’s (yield 3.03%) while MBS are off 4/32’s (tighter spreads which is good).  We also had the Chicago Fed National Activity Index out, which dropped .94 to its worst level since October.  Manufacturing output, or the lack thereof, did the trick.

Fast money is selling the long end of the curve, dragging the 10 year note along with it.  Not a lot of downside is expected from here.  The week ahead will feature Case Shiller Home Prices, Consumer Confidence, Durable Goods, Weekly Claims, and GDP on Friday.  Good week for data and market moving volatility.  For the week ahead, we see the market weaving and bobbing with a neutral/bearish type bias as investors will be looking to buy treasuries at yields slightly higher than current.  We still like the market long term as the detours are everywhere.

Short term, Austin mortgage borrowers are encouragerd to stay defensive.

We expect Austin mortgage rates to stay low into the foreseeable future with current levels being the top of the range (best levels we could see)

New day, same story.  Doesn’t this feel like one of those cheap, B movies called “Europe gone Wild”?  The plot is nothing more than traders running around with a lack of confidence, hitting the panic button every chance they get.  Liquidity is another issue as the fear of bad debt is contagious.

The Koreans are not doing anyone any favors as the saber rattling between North and South starts to escalate.  For those who don’t know the story, North Korea sunk a South Korean military boat in March, killing 50 sailors.  To say the least they got a little ticked off.  South Korean banned imports and now North Korea puts their military on alert.  As if we didn’t have enough to worry about.  As a consequence of all the above, all markets across the pond took it on the chin, triggering another round of flight to quality buying in Uncle Sam’s paper.  Seems we are the IOU of choice.

Mortgage backs are green but only up 4/32’s as credit spreads continue to blow out in all fixed income products again their treasury counterpart.  What we mean by this is that the value of a mortgage backed security is not keeping pace with the lower yields produced on the 10 year.  Case in point is today’s trade.  10 year note up 17/32’s (yield 3.17%), MBS up 4/32’s.  The reason for the spread widening is that investors are being risk adverse to any product except the real thing, Uncle Sam’s Treasury paper.

Earlier today, S&P’s Case Shiller housing prices fell 3.2%.  However, the 10 city index rose 3.1% and the 20 city index rose 2.3%.  Not bad all things considered.  Consumer Confidence had a positive print as well, up 5.4 points to 63.3.  This is the third month in a row to post a gain.  Within the index, the labor market differential is this only sorry spot, down 39 points.  Hard to find a sustained recovery until we put people back to work.

FHFA Home prices were also released, down .3% in March and off 1.9% for the first quarter.  This index only measures home prices with Fannie and Freddie loans attached so we are not bringing Jumbo into the mix.  We do have a 2 year note auction (12:00 cst) which, given the chaos, should go off without a hitch.

This market is hard to handicap.  On one hand, Europe will not get out of the dog house anytime soon.  On the other hand, our economy is stable, maybe not growing very fast but stable.  We expect Austin mortgage rates to stay low into the foreseeable future with current levels being the top of the range (best levels we could see).  Pull backs, however, will be shallow until investor confidence returns on a global basis.  One good point of reference is the 10 year note now trading at 3.16%.  For any rally to develop (from this point forward), we will need to see a close below 3.09%.  Expect volatility to be extremely high for the balance of the week.  One more thing: don’t look at your 401K, it’s hazardous to your wallet.

In a nutshell, borrowers need to be wary of waiting to lock in this market

The early trade was flat, treading water in both bonds/stocks and then Consumer Confidence came along.  The March index jumped 6.1 points to 52.5, reversing February’s sharp decline.  The Present Situation component rose to its highest level since August while Future Expectations jumped over seven points.  The rebound was expected but maybe not to this level after February’s weather, etc. depressed the figures.

Case Shiller 20 city home price index was also released, down .7% year on year.  The reading was in line with economist’s expectations.  While a number of cities are starting to see improvement (San Diego, Dallas, Charlotte) on a year over year bases, only San Diego had a month on month increase.  Stability is starting the creep in but it will still take time for a bottom to form.

With month end/quarter end upon us, the sideways to upward bias we have seen in mortgage pricing will come to a halt.  Post data, the 10 year note sold off 8/32’s and mortgage backs went from unchanged to down 7/32’s.  Plain and simple, we are developing a better bias for higher treasury yields and Austin mortgage rates as the economy looks to pick up steam and the Fed’s quantitative easing measures go away.

Bearish trend signals remain good on daily charts but the market has been correcting and may continue to hang in there until Friday’s Employment Report.  What troubles us with the chart is the lack of any substantial rally given the support of month end buying, short covering, and very oversold conditions.  Since the selloff last week, we have only rallied for three eights of a point.

In a nutshell, borrowers need to be wary of waiting to lock in this market. The potential for worsening Austin mortgage prices is high as our work projects 4.0% on the 10 year before we see 3.75% (currently 3.88%).  If there is a White Knight, it could come via an Employment Report (7:30 am cst Friday) that is well below expectations, say flat to negative.

With the “street” looking for plus 200K and whisper numbers running as high as plus 400K, stock traders are all bulled up and bond traders are decidedly nervous.  The other shoe that could drop might be a flight to quality treasury buy due to a domino effect in sovereign debt.  With Greece on the ropes, talk has turned to Portugal and Spain and the downgrades that are certainly possible.  Could be a rolling thunder.

Although the market has done better today, the reflex rally has yet to do anything impressive

Late yesterday, sellers were starting to run out of bullets, allowing the market to steady out and start to recover.  That trend has continued this morning with the 10 year note currently up 9/32’s (yield 3.86%), mortgage backs up 6/32’s, and stocks up 40 something on the Dow.

Final 4^th Quarter GDP was revised lower from 5.9% to 5.6% and Consumer Confidence hit the tape unchanged month on month.  Regional Unemployment Rates remained unchanged according to the BLS.  The top spots for unemployment were Michigan (14.1%), Nevada (13.2%), Rhode Island (12.7%), California and South Dakota (12.5%), and Florida (12.2%).  It’s easy to see that states with a large auto presence and/or states that experienced stealth rallies in housing, leading to a bubble, have been hit the hardest.

Although the market has done better today, the reflex rally has yet to do anything impressive.  Typically this leads to a neutral, inside day with the pattern not strong enough to overtake the bearish sentiment of the past two days.  Usually, this type of short term bottom leads to a period of stalls and allows the moving averages to “catch up” to the market.  We expect that with month end buying, the market could make a run for 3.83% yield on the 10 year note (currently at 3.86%) before rolling over and retesting the bottom ( heading back to 3.93%).

Have a great weekend.

Best advice is to use any rally to lock your interest rate in!

Retail Sales jumped .3% and .8% ex-autos, well above economists’ expectations.  Gains in food, beverages, and gasoline station receipts led the way.  Auto sales pulled down the headline print, falling 2.0%.  Traffic was higher for most Retail Stores as well, with notable gains in women’s apparel outlets like Ann Taylor.

Given the wicked weather in February, the numbers are impressive but suspect.  Is the consumer coming out of a two-year shell or is it just time to replace some items that have simply worn out?  Time will tell.  If you’re looking to Consumer Sentiment for the answer, look again.  The index fell in this morning’s release, down 1.1 points to 72.5.  Both current conditions and future expectations fell with the latter down only slightly.  The index is moving sideways, a mirror image of our employment situation.  As employment goes, so will our feelings about how fat your wallet is.  Reaction to all of the above has been somewhat of a whipsaw.

Post Retail Sales, treasuries and mortgage backs fell like a rock with the 10 year note down 14/32’s at one time.  Mortgage backs were off 11/32’s at the same time.  Stocks as one would expect, were up 20 something and looking to breakout of upper part of the range on S & P’s (1150).  Once Consumer Confidence was released, traders threw cold water on stocks and our fixed income paper started a comeback.  Currently, the 10 year note is up 1/32^nd but mortgage backs are still off 7/32’s (we priced down 8/32’s).  Technically, the early selling triggered a new bearish trend (higher interest rates) but 10 year notes and 30 year bonds remain neutral on this study.  Given the volatile trading conditions, a bullish divergence has come into play with the chart now working on an outside day up (bullish formation).

Given the trading dynamics of late, we expect any rally to be muted.  Over the past week or so, I’ve talked about the triangle formation on the 10 year note daily chart.  Looking at that chart below, you can see how the formation is “winding itself” tighter and tighter and will eventually “breakout” into a major trend move.  3.89% and 3.43% mark the extremes (currently trading 3.72%).  Until this happens, we expect the market to be range bound between the two extremes.  Given the stabilization in the economy and slowly improving data, the higher percentage odds will be towards higher yields.  Time frame on this is tough to call with our most likely guess being the second half of the year.

With so many variables to consider – employment, sovereign debt, political rang lings’, and on and on – managing interest rate risk and helping our borrowers with their decisions on Austin mortgage rates is very hard to handicap.  Best advice is to use any rally to lock your interest rate in!

We’ll try to wrap it up for the week later today.

Austin Mortgage Market Update – For the week of February 1, 2010

For the week of February 1, 2010 – Vol. 8, Issue 5

>> Austin Mortgage Market Update INFO THAT HITS US WHERE WE LIVE The week began with December Existing Home Sales dropping 16.7%. Some observers felt this was the result of uncertainty over the homebuyer tax credit, scheduled to expire at the end of November. The tax credit was, as we now know, extended into this year, but it wasn’t announced soon enough to help December sales. Nonetheless, Existing Home Sales are UP 15.0% over a year ago. And the median price of an existing home is now $178,300, UP 1.5% over a year ago and the best year-over-year comp since 2006. Finally, inventories are now down to 3.29 million, their lowest reading since March 2006. Wednesday, New Home Sales were reported at a 342,000 annual rate, down 7.6% for December. But inventories are now at 231,000, 59.6% below their mid-2006 peak and at their lowest level since 1971, when the population was two thirds its size today. The Case-Shiller index of home prices in the 20 biggest markets went up a seasonally-adjusted 0.2% in November. This was the sixth month in a row the index gained and prices increased in 14 of the 20 markets. The FHFA price index for homes bought with conforming mortgages went up 0.7% in November, its fifth advance in the last seven readings. According to Freddie Mac’s weekly Primary Mortgage Market Survey, mortgage rates inched down for the fourth week in a row. But prospective homebuyers and owners looking to refinance should note that the Fed reiterated its intention to end mortgage bond purchases on March 31. Experts feel this will make rates head up a bit. >> Review of Last Week STILL SLIPPING… There were plenty of good things to consider last week, but investors chose to dwell on the negative tidbits instead. This sent stocks down for the third week in a row, making January the worst month for the markets since February 2009. The week began with Apple reporting its most profitable quarter ever. Microsoft and SanDisk also made the tech sector look good by beating earnings estimates, but Wall Street worried about the companies’ cautious outlooks. Oh well. We even saw Consumer Confidence UP in January for the third month in a row! At its meeting last week, the Fed left the funds rate at 0% to 0.25% and altered the language of its policy statement to be more bullish on the economy. But there was one dissenting vote against keeping the rate low, which investors fretted over. That evening, President Obama’s State of the Union message didn’t include too many specifics on how he would help boost the economy. Stocks slid Thursday. December durable goods orders were up only 0.3%, but taking out transportation, they were UP 0.9% for the month and UP 11.9% annually for the last six months. History shows that once businesses begin investing more in equipment (“durable goods”), payroll gains soon follow. Friday we got the terrific news that the U.S. economy grew in Q4 of last year at a 5.7% pace, the fastest GDP growth rate in six years. Pessimistic observers seem scared to admit the economy is in fact improving, commenting that inventories accounted for a large part of Q4 growth. In fact, final sales, which is GDP excluding inventories, are UP at an accelerating pace for three straight quarters! The Chicago PMI, expected to decline, instead increased, showing growing strength in Midwest manufacturing. And the employment index came in at the highest level since 2005, reporting its first positive number since 2007. But for the week, the Dow dipped 1.0%, to 10067.33; the S&P 500 slipped 1.6%, to 1073.87; while the Nasdaq was down 2.6%, to 2147.35. In addition to sliding stocks bringing new money into the bond market, we had month-end buying helping to push prices up. The FNMA 30-year 4.5% bond we watch ended UP 9 basis points for the week, closing at $101.03. Mortgage rates are still historically low, according to the most recent Freddie Mac report. >> This Week’s Forecast ANOTHER LOOK AT HOUSING AND JOBS… December Pending Home Sales will grab our attention on Tuesday, then Friday everyone will key on the January Employment Report. The consensus expects no change in the unemployment rate but does think we’ll see some new jobs added. That would be great! The week will also bring us the important ISM read on manufacturing, plus personal income and spending numbers. >> The Week’s Economic Indicator Calendar Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates. Economic Calendar for the Week of February 1 – February 5 Date Time (ET) Release For Consensus Prior Impact M Feb 1 08:30 Personal Income Dec 0.3% 0.4% Moderate M Feb 1 08:30 Personal Spending (PCE) Dec 0.3% 0.5% HIGH M Feb 1 10:00 ISM Index Jan 55.2 55.9 HIGH Tu Feb 2 10:00 Pending Home Sales Dec 1.1% -16.0% Moderate W Feb 3 10:00 ISM Services Index Jan 50.9 50.1 Moderate W Feb 3 10:30 Crude Inventories 1/29 NA -3.89M Moderate Th Feb 4 08:30 Initial Unemployment Claims 1/30 454K 470K Moderate Th Feb 4 08:30 Continuing Unemployment Claims 1/30 4.600M 4.602M Moderate Th Feb 4 08:30 Productivity-Prelim. Q4 6.0% 8.1% Moderate F Feb 5 08:30 Average Workweek Jan 33.2 33.2 HIGH F Feb 5 08:30 Hourly Earnings Jan 0.2% 0.2% HIGH F Feb 5 08:30 Nonfarm Payrolls Jan 13K -85K HIGH F Feb 5 08:30 Unemployment Rate Jan 10.0% 10.0% HIGH >> Federal Reserve Watch Forecasting Federal Reserve policy changes in coming months Last week the Fed repeated its commitment to keep the Funds Rate at current low levels for “an extended period.” Ben Bernanke was then confirmed by the Senate for a second term as Fed Chairman by a 70-30 vote. Most economists think things will stay as they are. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same. Current Fed Funds Rate: 0%–0.25% After FOMC meeting on: Consensus Mar 16 0%–0.25% Apr 28 0%–0.25% Jun 23 0%–0.25% Probability of change from current policy: After FOMC meeting on: Consensus Mar 16 <1% Apr 28 1% Jun 23 9%

Daily oscillators are still posting positive readings and holding above midrange levels – all good things for those that want lower mortgages/better pricing

Results of the first leg of this week’s auctions (2 year note) just hit the tape.  Yield came in at .88%, Indirect Bidders took only 11%, and the bid to cover was 3.13 to 1.  The issue also had a 1 bp tail.  This was not an aggressive auction so we’ll give it a C.  Post results, the market pulled back and briefly when negative on mortgage backed securities.

Currently, the 10 year note is up 2/32’s (yield 3.62%), mortgage backs up 1/32^nd, and stocks plus 73 on the big board.  Trading is a little spooky right now as Wall Street dealers fear there might not be the sponsorship for Wednesday and Thursday’s longer duration auction paper ( 5’s and 7 year notes).  We also have the FOMC statement tomorrow and the State of the Union speech so buckle up, this thing could get slippery.  Earlier today, Consumer Confidence was out with a print of 55.9 (improvement) and the Case Shiller Home Price Index was down 5.3% (as expected).

Earlier than that, the wheels were churning across the pond as Italy, Greece, Spain, Portugal, and now Japan are struggling with their sovereign debt.  S&P just put Japan on the negative credit watch.  With China putting the brakes on bank lending, the mood outside the U.S. is tentative at best.  On the bright side, Barclay’s has issued their indices for month end extensions, a measure that fixed income funds must conform to per their filings.  The extensions are larger than expected so in English, this will be supportive of mortgage pricing until at least Thursday afternoon.  Technically, the high today approached the 62% retracement level of the November/December selloff (188 11 in futures/ 3.56% yield on the 10 year note).  We failed to take that level out and have now backed away.

Not to rain on your parade but this failure could be the start of a new corrective phase.  Your key will be if yields on the 10 year note print 3.65% or higher.  On the bright side, daily oscillators are still posting positive readings and holding above midrange levels.  All good things for those that want lower mortgages/better pricing.  Just want you to know that this baby is like herding cats so keep both hands on the leash!

Really, the market is marking time, ready to grab a turkey leg and a cold one

Lots of economic data today with revised Q3 GDP, Consumer Confidence, Case-Shiller Home Price Index, FHFA Housing Index, FOMC minutes of the last meeting, and 42 billion in 5 year paper up for auction.  Revised GDP came in near expectations, down .7% at 2.8% (revised from a previous 3.5%).   Downward revisions to personal consumption and nonresidential fixed investment did the most damage.  Case-Shiller Home price index measures home prices in 20 of the largest cities.  The index rose .3% month on month yet is down 9.4% year on year.  The Pacific and Mountain cities were the best performers and overall, stability was evident in most others.  FHFA Home prices, a measure derived from only FNMA/FHLMC loans, was unchanged month to month and up .2% for the 3^rd Quarter.  The East North Central did the best, up 1.1% while the West South Central sat in the back of the bus but still up .1%.  Consumer Confidence hit the tape better than expected, up .8 to 49.5.  The rebound can be attributed to a 1.5 point increase in current expectations.  The gain was offset by worsening business conditions and a slight dip in future consumer expectations.  Details of the 42 billion dollar 5 year note auction will be out at high noon cst while FOMC minutes will hit the screen at 1:00 pm cst.  All of the above has done little to move the market.  For the most part it’s been a quiet yet slightly bullish day for bonds, notes and mortgage backs (up 3/32’s).  Stocks were off 70 something early but have cut their losses in half, currently down 41 on the big board.  Trading has really been a two way affair with the pro’s controlling most of the action.  Think of the price action this way.  When football teams have a big lead in the 4^th quarter they are content to take a knee and wind the clock down to zero, trying to avoid injuries and mistakes.  Same thing with traders.  With most fixed income and equities traders having a good year, this late in the game (little over a month to year end) no one wants to screw their gains up as that is what bonuses are based on.  That keeps a bid in treasuries, especially short maturities like 3 month T-Bills, as they are a safe haven play to stash money.  From the technical picture, the chart is content to hang out near the highs (low yield mark) but cannot take it out.  The downside (selling) has been limited as well with the regression line since October supporting the market as well as the 8 and 21 day moving averages.  We call this a goldilocks market, not to hot, not to cold, but just right.  Really, the market is marking time, ready to grab a turkey leg and a cold one.

Although the home price numbers are good, uncertainty with the 8K stimulus plan and continued high unemployment will need to be monitored

Meant to post this yesterday!

Hey what do you know, a little green on the screen!  Case Shiller Home Price Index painted the screen with an improvement of 1.2% while the year on year figure was down 11.3%.  The number were a bit better than consensus, showing signs of stability creeping back into the housing market.  17 of the 20 market surveyed showed positive price improvement with Charlotte, Las Vegas, and Cleveland the only decliners.  Although the numbers are good, uncertainty with the 8K stimulus plan and continued high unemployment will need to be monitored.

Consumer Confidence was also released, down nearly 7 points to 47.7, well below the 53.1 economists were expecting.  The devil was in the present situation component which fell 2.3 points, its lowest level in 26 years.  Consumers and their view on hard to get jobs provided an addition drag.  Even with Consumer Confidence being a volatile index, the future of our economic recovery depends on a healthy consumer, one that has a job and a little “ching” in their pocket.

Just out, the 44 billion 2 year note auction was “dead solid perfect” ( Randy Quaid 1988).  Bullet yield of 1.02%, 44.5% taken by the indirect bidders, and a 3.63% bid to cover gives this one a grade of A.  Bonds like it, stocks don’t.  Currently, the 10 year note has returned from the abyss, up 18/32’s to yield 3.48%.  MBS has widen a touch to treasuries but have gone along for the ride, up 6/32’s.  Stocks have given up their gains, currently off a point or two.

Technically, the chart has taken out the down trend line, putting at least a temporary bottom in the market.  However, we view this as a counter trend rally in a longer term bear market.  In other words, until the market can prove itself, this is a correction and should be sold.