Happy Monday. Even though the Hang Seng and Nikkei (Asia Stock Markets) were up over 1% last night, profit taking has been the theme on both the Big Board and the Naz. Nothing huge as the Dow is off 20 points. Bonds, notes, and mortgage backs however, have gotten a lift from soft equities. Currently, the 10 year note is up 18/32’s while MBS are plus 8/32’s on the current, 4.0% coupon. Take advantage of the rallies, Austin mortgage borrowers!
Auction supply, to the tune of 100 billion kicks off today with 36 billion of 2 year notes. Tuesday/Wednesday’s plate will be filled with 64 billion of 5 and 7 year notes. Late last week I talked about the upcoming economic calendar which heats up tomorrow, Thursday, and Friday. Market players will pay close attention to the manufacturing and industrial data, looking to confirm or reject the recent uptick in activity.
Overall, we see the stock market as moving away from any notion of a double dip, instead feeling a little giddy about taking on more risk. Reason being is that traders view one of two scenarios playing out, both good for stock prices. The first is that a bonified recovery is taking place, albeit at a slow pace but recovery none the less. Conclusion, stocks go up. Second scenario is that the recovery falters and Sir Ben fires up the helicopter, spreading money all over the country as Quantitative Easing 2 goes full bore. Asset purchases by the Fed (Treasuries and MBS) will drive the stock market higher. Scenario number 2 will keep Austin mortgage pricing low while what’s behind door number 1 will lead to a gradual escalation in mortgage pricing.
Short term focus for Austin mortgage borrowers is tactically defensive, only due to auction supply paper. We see traders trying to back the market up (selling), only to buy once again at the conclusion of the auctions for month end/quarter end. Good case can be made for a volatile week ending up right where we started.
