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.

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.

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.

One word of caution as you look at the chart. Currently, we’re right up against the top of the range (116 10 in futures and 3.83% 10 year note yield). For the market to do better (Austin mortgage pricing improvement), we need to breach and close above 116 10 (below 3.83% yield). Otherwise, all that has happened is that we’re tested the top of the range and we’ll once again consolidate, moving back towards the center of the range. Traders like the set up and prefer to short (sell) the market at this level with tight stops. Meaning that if their wrong, they will know quickly and will get out with small losses.

The economic calendar heats up as well this week. Housing data tomorrow, inflation and Retail Sales on Wednesday, housing, inflation, and Weekly Claims Thursday, and Michigan Sentiment Survey on Friday.

The week has gotten off to a slow start with the 10 year note off slightly and mortgage backs following suit.  The stability can be linked to month/quarter end adjustments by money managers and hedge funds to bring their bogey in line with the Barclays Index.  That buying should continue through tomorrow as the index needs are .16 years (duration add).  Earlier today, Personal Income/Spending hit the tape unchanged and up .3%.  Economists were looking for Income to be up .1% and Spending to be up .3%.  No great shakes here.

The balance of the week could get a little dicey however with Housing and Consumer Confidence tomorrow, ADP Employment “guess” on Wednesday, Construction Spending, ISM Index, and Weekly Claims on Thursday, and Big Daddy, the Employment Report for March front and center on Friday (7:30 am cst).

For now, the tactical bias is neutral/defensive into what the market feels is going to be a positive jobs number (plus 200K).  The weakness of the past few trading days has changed the trend to bearish.  The little bit of stability we’re seeing is only due to month end.  That can only mean one thing as seller are waiting in the wings.  We would advise borrowers to lock their Austin mortgage interest rates, expecting that we will see 4.0% on the 10 year note before we see 3.75%.  The interest rate landscape (lower Austin mortgage rates) is not over, just on hold.

Given the Fed’s exit from MBS purchases, their steering of quantitative easing ala Austin mortgage rates hike sooner than later, and a fragile housing market that must be content will mean more inventory and less stimulus, a case for the double dip can certainly be made.  That scenario has a high probability (in our opinion) and brings with it lower Austin mortgage rates.

Hang in there.

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)

Market Consensus:

1. Nonfarm Payrolls – Minus 5K
2. Unemployment Rate – 10.1%
3. Average Hourly Earnings – Plus .2%
4. Average Work Week – 33.2 Hours (unless you are in Mortgage Banking)

One of the difficulties with handicapping today’s report is that of revisions.  Seasonal revisions, benchmark revisions, and workweek revisions (now all workers rather than production and nonsupervisory) will present themselves and need to be accounted for.  A trend towards stability in Manufacturing, even if it is primarily inventory rebuild, is also in the mix.  Some are calling for an improvement in construction jobs due to milder January weather but I’m not sure exactly where they live.  Texas has been nothing but cold and rainy.

Street talk is looking for the government sector to prop up jobs with more consensus workers hired and on and on.  Seems to us like the “Street” is trying to talk itself into a bullish jobs number, one that could see growth of 20K to 30K.  Matter of fact, Barclays is calling for a net job creation of 25K jobs.  We see this report as not so rosy.

Given the recent uptick in Weekly Claims (used in the household survey), the ADP call for job losses of 22K, and our view that the labor market is losing jobs as fast as they are creating them leads us to the following “guess”:

1. Nonfarm Payrolls – Minus 30K
2. Unemployment Rate – 10.2%
3. Average Hourly and Average Workweek to be spot on with consensus.

Given that the “Street” is looking for better than expected numbers, that reality would once again put a top in our market and produce higher yields, worsening mortgage pricing post release.  We do feel that any selling will be shallow as the global doom and gloom will be with us for some time to come.  Stocks would benefit and maybe just in time to save that market from a much bigger correction.  If our bias is correct, you should see mortgage pricing hold steady to improve, watching to see if stocks can find their sea legs.