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 3rd and 4th 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 2/32nd. 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.