Both stocks and bonds opened on the weak side this morning.
- New Home Sales blew the doors off economist’s estimates, up 11% to a seasonally adjusted 384K annual units.
- Inventories were down to 8.8 months, the lowest level since October 2007.
- Sales in the Midwest jumped 43.1%, the West rose 22.6%, and the Northeast posted a 29.6% increase.
- Only the South failed to rise again, falling 5.3%.
The improvement is welcome but somewhat is question as continued growth will depend on Unemployment, foreclosures, and a consumer that feels good about re-entering the market. The week ahead will focus on treasury supply.
When you include the cash management bills, etc., the total package is over 200 billion in paper to be auctioned off this week. That’s the primary reason that the 10 year note is off 12/32’s (yield 3.71%) and mortgage backs off 5/32’s. We did dip as low as 3.75%, a target we were looking for and a level of good support. Stocks are off 30 something, unable to rally on the positive housing news. Trouble is they are very over bought after rallying 11% in two weeks. We’re looking for a pullback, lending support to mortgage pricing.
News this week will consist of the following:
- Consumer Confidence,
- Durable Goods Orders,
- the Fed’s Beige Book,
- Weekly Unemployment Claims,
- and GDP (Advanced Q2),
- Employment Cost Index,
- Chicago Purchasing Managers report,
- and ISM for Milwaukee on Friday.
Technically, the rise in yields is a continuation of last Wednesday/Thursday’s selling and Friday stall (weak reversal). Sellers are in control of the market but strong momentum has not been confirmed. We see the selling as shallow into the later part of the week and then a rebound/rally to deliver better mortgage pricing as we close the book on July.
