Austin Mortgage Blog

Posts Tagged ‘PPI’

Housing Starts fell to 19 year lows

Looks like builders got caught in one of those east coast “turn abouts” and couldn’t get off as Housing Starts fell to 19 year lows.  PPI, inflation at the wholesale level, dipped .3% headline while the core (ex-food and energy) rose .2%.  Nothing here to be scared of.  Batting cleanup, May Industrial Production and Capacity Utilization came in a little better than expected.  IP rose 1.2%.  Cap U was up 1.0% to 74.7%.  Durable goods manufactured rose 1.7% on broad based gains while nondurables were flat.  Utility output was better than expected, pushing the Cap U number to its best level since last August.

Spain seems to be in the hunt as well with Spaniards and Germans locked in a war of words.  Credit spreads throughout Europe blew out once again, keeping global markets trapped between hope and fear.  With quarter end/mid-year end approaching, illiquid conditions and lower volume are starting to take hold.  We can expect this back and forth, headline trending action to continue albeit at a less volatile pace.

Currently, the 10 year note is plus 6/32’s (yield 3.29%), mortgage backs plus 3/32’s, and stocks unchanged on the big board.  Technically, we’re looking to sell strength into month end, especially if stocks hold their head up.  Range on the note seems to be 3.37% to 3.25% (currently 3.29%).  Chart wise, we’re sitting on the 200 day simple moving average with sellers in charge so far today.  This will keep the bias for more of a bearish trade. Stocks however could become very supportive for bonds, notes and Austin mortgage pricing.  Reason being is the number of pre-release guidance on a number of stocks reporting that revenues, etc. will be short of expectations.  Early July (2^nd quarter earnings) will be crucial for stock market direction and Austin mortgage pricing, helping us to sort out whether the double dip is economic reality or only at Braums.

USDA UPDATE: In a nut shell, the USDA program is out of money (except for disaster funds in a few areas)

Maybe Shangri-Las were thinking about the fixed income market when they recorded their hit single, “Leader of the Pack” in 1964.  Something like

“ I met them at the Treasury store, they told me that they were bad, but I knew they were really glad, that’s why I fell for the Leader of the Pack”.

Treasuries are the big dog on the global market with traders from all corners of world running to them for safety.  Take for example the Treasury International Capital Flows (TIC Index) which measures the purchases of our Treasuries by foreign entities.  In March alone, 108.4 billion were bought, making it the instrument of choice as global debt issues and stock market roller coasters rule the day.  PPI, a measure of inflation at the wholesale level, hit the tape with a benign reading of minus .1% headline and a core print (ex-food and energy) of plus .2%.  Nothing to be scared of here and if anything, a deflationary trend may be setting up due to the global slowdown in Europe.

April Housing Starts also hit the tape, up 5.8% to 672K units.  Not bad except when you look at new Building Permits which dropped 11%.  Still tough sledding for the builders out there.  10 year trading has been volatile this morning as we opened in the red (down 12/32’s) with mortgage backs off 5/32’s.  Stocks have worked their way off the early morning highs ( opened up 80 now up 47), helping treasuries and mortgage backs to boot strap themselves back to unchanged.

USDA UPDATE: In a nut shell, the USDA program is out of money (except for disaster funds in a few areas).  The Senate now has three competing bills so the work out process has begun.  Nothing scheduled on the Senate floor so this could take some time.  USDA issued guidance stating that they would issue condition commitments so we could proceed with the loan process but not close until the program was funded.  USDA has now pulled that guidance to issue conditional commitments.  As you can see, this is a mess.  Investors such as Chase, etc. will not take locks unless you have a conditional commitment or are in a county that has adequate disaster funds available as they see this as hedging a “phantom” pipeline.

Have questions about USDA funds? Call me (512) 293-1239.

A couple of missed earnings reports and a sack of rotten Gyros did the trick

Finally, a little economic news to chew on.  First up, PPI, inflation at the wholesale level grew .7% in march while the core index was plus .1%.  Gas and food were the drivers of the headline number, up 2.1% and 2.4% respectfully.  The “core” index strips out food and energy which is why that component is nearly flat.  Given the numbers, we see very little inflation at hand or in the pipeline.

Weekly Unemployment Claims were also released, posting a drop of 24K.  The level however remains stubbornly high at 456K, an indication that it will take some time to turn this Titanic around.  Existing Home Sales, a piece of data near and dear to our hearts rose 6.8% to 5.35 million annualized.  Inventory rose as well, up 1.5% which represents 8 months of supply.  With the 8K buyers credit saying adios later this month, long term projections for a housing recovery are murky.  We shall see.

Last but not least was the FHFA Purchase only House Price Index.  Overall, the index was off .2% in February and down 3.4% year on year.  Prices declined in the South Atlantic, New England, and West North Central areas while modest increases were seen in the Middle Atlantic, Pacific, and West South Central regions.  High inventory levels due to foreclosures will continue to put this index under pressure.

Earlier today, treasury yields fell to their lowest levels in a month as Greece continues to slip into the ocean.  Yields on Greek 2 year notes are now over 11% as their yield curve inverts.  That’s the technical term for going on life support before someone pulls the plug.  Stocks are also in the soup, down 74 points on the Dow.  A couple of missed earnings reports and a sack of rotten Gyros did the trick.

Stocks are up a baker’s dozen on the big board as very overbought conditions are in a dog fight with stellar 1st quarter earnings

Stocks and bonds look to be the tale of two fables.  Stocks on one hand continue to tell the story of positive earnings data as day after day, the majority “beat the street”.  Apple reported after the bell yesterday, blowing the doors off expectations.  Morgan Stanley and Wells Fargo posted earnings beats as well with comments from the Stage Coach company that credit deterioration is improving and has “turned the corner”.

Fixed income products (notes, bonds, and mortgage backs) are on a different page with yields falling/mortgage pricing improving on a continued and heightening sovereign debt crisis.  Yields on the Greek 10 year note are over 8.0% as the German Finance Minister expects the country to ask for aid.  He also hints that “creditors may need to assume some of the risk”.  As you can see, we have stocks and their earnings along with bonds and their flight to quality bid both driving the rally bus.

No economic news today.  That will change tomorrow with Weekly Claims, PPI (inflation at the wholesale level), Existing Home Sales, and the House Price Index all on the leader board.  Out right money flows or price action has been light and two way.  We are not seeing the volume in notes and mortgage backs to give us confidence in a continued rally.  That said, we do not expect much of a pullback either.

Currently, the 10 year note is up 10/32’s to yield 3.76%, very close to our range high (low yield) expectations of 3.75%.  Mortgage backs are plus 4/32’s on the day.  Stocks are up a baker’s dozen on the big board as very overbought conditions are in a dog fight with stellar 1^st quarter earnings.  Looks like one of those rare days when everyone is happy.

“If” the health care bill comes to a vote this week and passes, stocks could very well change their tune

Apologies – meant to post this yesterday!

For better or worse, Fed policy, as dictated in yesterday’s meeting, will keep the bond market stuck in a range.  Given the supply/demand issues with quantitative easing, our mortgage pricing we have seen over the past month could continue for weeks.  On one hand we have the Fed stopping its purchase of mortgage backs at the end of the month.  They have been buying 10 billion a week.  On the other side, the market has built up a sizable short position in MBS from both the portfolio side and the Fannie/Freddie buy back that will last until August.

As we mentioned yesterday, all the Fed can do is manage their way to the end game, looking for the private sector to pick up steam so we can get back to “normal”.  Earlier today, PPI, inflation at the wholesale level, fell .6% headline while the core index (ex-food and energy) rose .1%.  This is the largest decline in seven months.  Energy prices were the heavy hitter, falling 2.9% with gasoline prices down 7.4%.  Inflation by any standard is a non-issue given this data.  Fed Chief Ben Bernanke will be on the hill today, testifying before the House Financial Services Committee.

Currently, everyone is wearing green as the 10 year note is up 2/32’s (3.64% yield), MBS up 1/32^nd, and stocks up 30 something on the big board.  Technically, the 10 year note retested the peak set on February 5^th, pulled back a little, but still trades in the upper end of the range.  The trade doesn’t seem to have a lot of momentum, telling us that this is more about short covering (traders who bought the market now selling) than it is about new buyers coming into the market.  Stocks are at a crossroads as well, grinding higher in what looks like a gravity defying move.

“If” the health care bill comes to a vote this week and passes, stocks could very well change their tune.  Bottom line here is that most markets are neutral, waiting for something to fuel a trend change.

The market was doing just fine until the headlines broke the minutes of last month’s FOMC meeting (Fed Open Market Committee)

The market was doing just fine until the headlines broke the minutes of last month’s FOMC meeting (Fed Open Market Committee).  The “Street” didn’t take kindly to comments regarding treasury asset sales, consideration of a .25 bps hike in the Discount Rate, and a general hawkish tone once they can determine that a recovery is “self sustaining”.  The “headlines” unnerved traders, causing the 10 year note to drop ½ point in minutes.  Although the 10 year and mortgage backs are set to close on the weak side, major support held.  We are closing below the 21 day moving average for the first time since January 12^th, a not so good sign.  We need to be careful here as any close above 3.79% on the 10 year note will set a bearish trend in motion (currently 3.74%).  For now, we are just testing the bottom of the range with sellers holding an edge.  Best to stay defensive into tomorrow morning’s Weekly Claims release and PPI (inflation at the wholesale level).

Related articles

• FOMC Minutes: Market Watchers React (blogs.wsj.com)

Lots of first tier data this week with housing data, PPI, and CPI (inflation data) taking the top billing

After a slow, slightly bearish start, treasuries and mortgage backs have worked their way back to unchanged or slightly better on the day.  Most of the early news was not bond friendly as the Empire Manufacturing Index (New York State) jumped 8.99 points to plus 24.91.  Good news is that the number was better than consensus.  Bad news, the 6 month outlook dipped nearly 4 points.  TIC data, the index used to track Foreign purchases of our debt didn’t help either.  From November to January those across the pond cut their purchases of fixed income assets in half.  That was evident in last week’s Refunding auctions which were not well received.  Simply put, no one wants to extend duration in their portfolio’s as navigating the markets been one tricky adventure.  NAHB, the Home Builders Market Index was the last of today’s data, posting a plus 2 point rise to 17.  First time tax credits (the 8K wonder check) and steady traffic in builder models seem to have pushed the number.

Just out, comments by Minneapolis Fed Governor Kocherlakata that U.S. political uncertainty is problematic for future growth, inflation is relatively tame, and the jobless outlook in not comforting (sees above 9% throughout 2010) have all combined to lower yields and improve mortgage pricing a couple of 32’s.  Nothing huge but certainly better than 7:30 this morning.  Lots of first tier data this week with housing data, PPI, and CPI (inflation data) taking the top billing.  Best to stay a little defensive and keep an eye on the “Headlines.”

Factors good for mortgage pricing and bad for your 401K

China is in the news, telling its regulators to put a hold on new bank loans.  This follows a .50bps rise in reserve requirements put in place last week.  Stateside, PPI, inflation at the producer level, rose .2% headline while the core index (ex-food and energy) was unchanged.  Food prices rose 1.4% ( maybe high priced OJ) and finished energy goods were up .5%.  Other than that, the report was inflation friendly and given the slack in the economy, should not give the Fed any heartburn.

Housing Starts were also released, falling 4.0% to 557K.  The below consensus print took its punishment from single family homes down 6.9% and unseasonable cold weather for much of December.  Building Permits when the other way, rising 10.9%.  Interesting news from Pimco, the world’s largest bond fund on their changes in asset allocation.  In December, they dropped their holdings of government related bonds from 51% to 32%, increased cash holdings from 7% to 8%, and increased holdings in both mortgage backed securities and dollar denominated developed market debt (Germany, etc.) to 17%.  Bill Gross, Pimco’s bond god, said the decisions were based on their view of the dollar’s direction (negative) and increased government debt.  All of the above has been good for mortgage pricing and bad for your 401K.

Stocks are really taking some heat, down 200 points on the big board.  10 year notes are plus 16/32’s (yield 3.65%) and mortgage backs are plus 6/32’s.  Yesterday we talked about the 3.67% level being key for near term direction.  If we can close below that level (currently at 3.64%), we should have a little more giddy up in our getalong.  Buy signals are all over the chart along with positive trend signals on 8 day ADX.  Given the close we are looking for, next target on the chart points to 3.55%.  Shaping up to be a good day for the good guys/gals.

Bonds, notes, and mortgage backed securities are doing quite well given the plus 100 point gain on the big board

Just released, the NAHB HMI Index fell 1 point to 15.  The index is a measure of Home Builder confidence based on a combined survey from the National Association of Home Builders and Wells Fargo’s Housing Market Index.  Economists were looking for a bump to 17 but due to a handful of forces, namely consumer concerns about job security and competitive forces from the foreclosed housing market, gains were not to be had.  Earlier today, the Treasury Department’s report on International investment (TIC report) showed solid foreign buying of 19.3 billion.  This is encouraging as the total purchases, which includes government buying were at the best level since October 2007.  The only lager in this sector was net purchases of corporate bonds which may be a signal that corporate America has squeezed as much margin out of cost cutting, etc. that it can, leading to a better appetite for Uncle’s paper given the bumpy economy.  Time will tell.

Bonds, notes, and mortgage backed securities are doing quite well given the plus 100 point gain on the big board.  10 year notes off 7/32’s (yield 3.70%) and MBS off 3/32’s tell the tale of the tape.  Technically, a series of higher highs and higher lows are developing on the chart.  This is typical of bullish price action and will help to limit the downside (selling).  Bulls need a close below 3.68% to prove that further upside (rally) is in the cards.  Given the limited data until PPI (inflation index) on Wednesday and Weekly Claims/Leading Economic Indicators on Thursday, odds are good that we will continue to hang around current levels.

Housing market is stabilizing but will need to content with another wave of foreclosures as homeowners remain underwater and the loan modification programs to date have been a bust

CPI, inflation at the consumer level, rose a meager .4% headline while the core index (ex-food and energy) remained unchanged.  Higher energy prices bumped the headline number, just like they did with yesterday’s PPI.  Food prices, especially dairy products and nonalcoholic beverages, took a dip, helping the core index to hold steady.  The results were in line to a touch better than expected, taking the sting out of yesterday’s jump in PPI.  Overall, renewed demand for energy products and the falling dollar will continue to nudge headline inflation numbers higher but will have little effect on Fed policy.

November Housing Starts were also on the calendar, rising 8.9% to 574K units.  Although the print was up from last month, it came in below economists’ estimates of 580K units.  Supply of existing homes fell to 7 months, a nice improvement from the peak of 11.3 months in 2008.  Overall, we feel that the housing market is stabilizing but will need to content with another wave of foreclosures as homeowners remain underwater and the loan modification programs to date have been a bust.

All eyes have now turned to the FOMC and any change in interest rates/policy statement.  Given Global uncertainty (think Dubai, Spain, Greece, etc.) and year end constraints, we see today’s FOMC as a carbon copy of last month’s release.  Technically, the combination of oversold conditions and good support at the 3.60% yield level has given life to our bond market.  Currently, the 10 year note is up 13/32’s (yield 3.55%), mortgage backs up 6/32’s, and stocks up 25 points on the big board.  Technically, the market is trading in a counter trend move (rally) within the larger bearish trend.  Good resistance remains overhead at the 40 day moving average (3.49% yield).  The limited range is forming a neutral, inside day with the bears still in control.  As much as we want to like this market, it is nothing more than putting “lipstick on a pig.”  Keep your defense on the field.