Thursday, September 30, 2010

Market Snapshot by Sigma Research by SC Mortgage Assoc

Thursday, September 30, 2010
Treasuries and mortgages opened a little better this morning after a slight price dip yesterday. Not much change in early trading; stock indexes early on pointed to a better 9:30 open. Weekly jobless claims at 8:30 were fractionally better than expectations, down 16K against estimates of a 6K decline to 453K from revised higher 469K last week (frm 465K). Weekly claims are stabilizing at 450K levels with no improvement but equally no additional increase in claims filings. The four-week moving average, a less volatile measure than the weekly figures, dropped to 458,000 last week from 464,250, today’s report showed. The number of people continuing to receive jobless benefits fell by 83,000 in the week ended Sept. 18 to 4.46 million.

The final Q2 GDP at 8:30 had a small revision higher, to +1.7% frm +1.6% reported in the advance report last month. Corporate profits in Q2 were +0.9% down from 11.4% in Q1. Not much reaction to the release; Q3 ends today do it is history as far as the markets are concerned.

The DJIA and the other key indexes opened stronger this morning at 9:30; the DJIA up 65; the 10 yr note and mortgage market came under selling pressure. At 9:30 the 10 yr note yield at 2.54% was up 4 basis points and mortgage prices off 6/32 (.18 bp).

At 9:45 the Sept Chicago purchasing managers' index, expected at 56.0 frm 56.7, was stronger at 60.4. All components increased; new orders at 61.4 frm 55.0. employment at 53.4 frm 55.5 and prices pd at 55.0 frm 57.2. There was no initial reaction to the data as the the DJIA was already up 100 points, the 10 yr note was hit more, -17/32 to 2.56% and mortgage prices -14/32 (.44 bp) and down 9/32 (.28 bp) frm 9:30 levels. Lenders that priced before 9:30 will very likely re-price quickly.

On the QE debate; the U.S. Senate confirmed Janet Yellen as vice chairman of the Federal Reserve, currently the Pres of the SF Fed, Yellen is considered a voice in favor of increased Fed easing. Also confirmed, Sarah Bloom Raskin, Maryland’s commissioner of financial regulation to the Fed's Board of Governors. Both appointees have histories of being more pro-active that will support an easing move if Bernanke thinks it necessary. QE is the hot button these days, bet as we have noted previously, whether it actually occurs depends completely on data points over the next month. If there is an easing by the Fed to buy more treasuries and/or mortgages we don't think it will help much in driving down mortgage rates; a little decline but most of the action will stay in treasuries.

Today marks the end of US fiscal year 2010. The deficit isn't out yet but will likely be close to $1.3T to $1.4T.

Treasuries and mortgages being hit hard this morning so far; better weekly claims and Chicago PM indexes. Technically, as we have noted previously, the 10 yr note was unable to make new low yields so traders are covering adding to this morning's early volatility. If the national ISM manufacturing index hits stronger tomorrow morning look out, rates will very likely spike higher again. The better data this morning is shaking the QE idea; as we noted yesterday, there is a month's worth of data to see before the Fed meets in Nov, not to mention the elections so the idea that QE should be questioned.

So far this morning, one of the most volatile in weeks. Mortgage prices fell 18/32 (.56 bp) on the Chicago PM data but by 10:00 have bounced back to -10/32 (.31 bp). Treasuries having the same volatile trade; the DJIA, up 100 at 9:45, at 10:00 +73.

Wednesday, September 29, 2010

Market Snapshot by Sigma Research by SC Mortgage Assoc

Wednesday, September 29, 2010
Interest rate markets started unchanged this morning with no news to move prices; the stock indexes trading in the futures markets pointing to a lower opening at 9:30. Yesterday the 10 yr note closed close to its recent low yield at 2.47%, yet unable to push into new low ground; mortgage rates have generally flat-lined over the past couple of weeks even with the fall in treasury yields. At 9:30 the DJIA opened -35, the 10 yr unchanged and mortgage prices also generally unchanged.

Markets continue to focus discussions around the Fed's comment at the conclusion of the FOMC meeting last week that it is"prepared" to do another easing move if economic conditions warrant it. Markets took the comment as eventual fact sending treasury yields lower and boosting interest in equity markets. Will QE 2 be announced when the Fed meets again on Nov 2 and 3? If we do get more easing what shape will it take? Two questions with a multitude of answers depending on who is talking. A new theory emerged yesterday based on an article in the NY Times, that the Fed may not just buy treasuries but may step into corporates and other investments. Open-ended easing allowing the Fed to ease or not as necessary.

Does QE increase inflation levels? The Fed is worrying that deflation may take hold and wants inflation to increase to norms at 1.0% to 2.0%. The problem is QE doesn't have much impact on inflation directly; the Fed isn't printing money, it just borrows money from Treasury to do easing. The two largest sources of borrowed funds for the Fed are bank reserves and Treasury cash. Banks now earn interest on reserve balances and hold roughly $1T at the Fed. At the same time, the Fed is borrowing $277B from the Treasury. It uses these funds to buy mortgages or Treasury bonds. This is not the creation of new money and therefore does not create inflation or lift aggregate demand. Bank reserves peaked in February 2010 at $1.2T, and have since fallen by $252B. Banks appear to be taking back these funds to make loans or buy bonds.

Prior to the FOMC’s November meeting, the central bank will see the October jobs report, the first take on third-quarter gross domestic product and another round of readings on housing, retail sales and consumer spending. There is the potential that the Q3 GDP will be slightly stronger than 1.6% GDP growth in Q2. Economic outlooks and forecasts are changing on almost every key data point recently and over the next month with QE 2 the wild card, market reactions on economic releases will likely increase volatility.

If the central bank goes forward with QE 2, it should in theory result in selling of Treasuries by investors who then move into higher-yielding debt and eventually spill over into equities. If the Fed sees enough growth that it doesn’t consider QE 2 necessary, the improved forecast for the economy is likely to be constructive for equities as well. What happens to interest rates if another easing is put in place? Do investors, still sitting on the sidelines for the most part, actually step up investing and if so where will money go? Many believe back into equities and higher yielding corporate bonds and in turn walk away from treasuries pushing rates higher. If that scenario plays out mortgage rates will head higher. Others believe more easing will suggest the Fed is increasingly concerned the economy is headed back to recession and investors will flock to safety and run away from equity markets, pushing interest rates a lot lower on treasuries. The take away now is that more uncertainty has been piled on already uncertain outlooks for investors and markets.

At 1:00 this afternoon Treasury will auction $29B of 7 yr notes. The 2 yr and 5 yr auctions yesterday and Monday went well as most Treasury auctions have done over the last two years; no reason to think this one will be any different.

Monday, September 20, 2010

Market Snapshot by Sigma Research by SC Mortgage Assoc

Monday, September 20, 2010
Treasuries and mortgages started quietly this morning with not much driving news over the weekend and waiting another one of Pres Obama's "town hall meetings" that is expected to start at 12:00 this morning. By the time the equity market opened at 9:30 the rate markets had given back the slight gains and were trading lower. The equity markets, always optimistic unless a train hits it, is starting better. The political scene is back to full forces, and I use that with my tongue half bitten off; with elections fast approaching it is difficult to make much real sense out of the news bites from Republicans, Democrats and tea party enthusiasts. Jim Cramer the mad man on CNBC made a profound statement; he thinks we need certainty---you go guy. There is certainty but no one of us wants to accept it yet.

The certainty is that the US economic recovery will be very slow compared to what the country has been used to after the last five recessions. The housing sector; I don't like to repeat it over and over, but when we have over a 12 month supply of unsold houses on the market, and a shadow inventory that if dumped on the market today, would be another 12 months added. Consumers are not as stupid as some political wonks; those of us that live and work outside the "Beltway" or west of the Hudson River have a better understanding where the economy is than those in Washington and New York. Consumer spending low, home prices falling and no early end in sight, offset anything that Washington can do while New York continues the mantra that it is time to buy (stocks).

This week is FOMC and Housing stat week; tomorrow the FOMC will meet with some far out thinkers talking about more quantative easing by the Fed. We doubt the Fed will employ anymore of its bullets as whatever the Fed can do will not accomplish the goal of directly improving the pace of recovery. the statement will be out at 2:15 tomorrow. Housing data dominates this week with starts, permits, existing home sale and new home sales all for August. 2.3 mil homeowners have lost their homes in the past two years and over 2 mil more are likely to do so also.

A few minutes ago at 10:00 the Aug NAHB housing index was reported unchanged at 13, mkts were expecting 14; 50 is pivot, over 50 good under 50 bad. Traffic at open houses down one point, sales unchanged.

This Week's Economic Calendar:
8:30 am August housing starts and permits (starts +0.3%, permits +0.2%)
2:15 pm FOMC policy statement
7:00 am weekly MBA mortgage applications (N/A)
10:00 am FHFA house Price Index (N/A)
8:30 am weekly jobless claims (unch at 450K)
10:00 am Aug existing home sales (+5.2%)
Aug Leading Economic Indicators (+0.1%)
11:00 am Treasury announcement of next week's 2, 5, and 7 yr note auctions ($104B est.)
8:30 am August durable goods orders (-1.3% overall, ex transportation orders +0.7%)
10:00 am Aug new home sales (+4.8%)

Until 12:00 this afternoon when Obama appears for his town hall on CNBC markets will likely sit and wait. News pundits won't have anything to think about until then. After the town hall we suspect we will be right where we are now in terms of new news. The President must try an insure that he makes it crystal clear that for the rest of his presidency he will make economic recovery the #1 focus of his administration. So far the has not. It was health care and piling on massive new federal regulations that occupied him. It is little wonder that half his economic team has already departed. He has the platform, what will come of it? Meanwhile investors are quickly moving to speculating in gold, silver, platinum and other precious metals to try to make some money; at some point not too far off the rose will also die on those speculative investments that are characterized with huge use of leverage.

Tuesday, September 14, 2010

Market Snapshot by Sigma Research by SC Mortgage Assoc

Treasuries started better today, prior to 8:30 the 10 yr note held a 10/32 gain in price; at 8:30 retail sales hit and briefly took the gain away but within 5 minutes the note was back to positive improvement. August retail sales were expected to increase 0.3% and ex autos also +0.3%; as released sales were up 0.4% and taking auto sales out sales increased 0.6%. On the release both mortgage and treasury prices dipped back then rebounded.

Prior to the 8:30 release of retail sales the Nat'l Federation of Independent Business released its monthly data from small businesses. The optimism index increased to 88.8 from July’s 88.1 reading. Four of the index’s 10 components rose and one was unchanged. The measure averaged 100.6 in the five years before the economic slump began in December 2007. Although the expectations increased, the index is still in "recession mode" according to Wm Dunkelberg chief economist for the Federation. “Small business owners are expecting sub-par growth in the second half of 2010." “What businesses need are customers, giving them a reason to hire and make capital expenditures,” Dunkelberg said on CNBC. The group’s measure of expectations for better business conditions six months from now rose to minus 8 percent from minus 15 percent. The gain followed a nine-point drop in July. While the report has a little more optimism, it remains negative toward any substantial increase in jobs or sales. Small businesses are defined as those that employ 250 or less and small businesses have accounted for 64% of all jobs over the last 15 years.

At 9:30 the DJIA opened -10, the 10 yr +10/32 at 2.71% -3 BP and mortgage prices at 9:30 +7/32 (.22 bp) frm yesterday's close.

At 10:00 July business inventories, expected to increase 0.7%, were up 1.0%; sales increased 0.7% leaving a 1.26 month inventory supply, unchanged from June. no immediate reaction to the report.

Another good start this morning in the mortgage market and treasuries as both adjust to momentary oversold conditions after heavy selling over the last two weeks. While any improvement is welcome, the likelihood of a return to the recent very low interest rates three weeks ago isn't expected. We continue to hold that the low rates have been put in and while we do not expect a substantial increase in rates we do expect rates to increase a little more once the oversold technical conditions are alleviated. Markets are increasingly more convinced the economy will not double dip and investors won't likely run headlong into the safe arms of US treasuries as was the case since last Spring. In order to change our outlook it would take a huge increase in unemployment, if we see that it will resurrect the fear factor once again. While we do not believe in a double dip, and at the moment we do not expect rates to fall much from here, the economic outlook is more than murky, add in the coming election the situation can change quickly.

Nothing left on the schedule the remainder of the day; as long as the equity markets are negative as they are at 10:00 this morning, the bond and mortgage markets will do OK. The bellwether 10 yr note is at 2.68% but has technical resistance at 2.66%/2.65%. The 30 yr Oct FNMA coupon has price resistance at its current price (102-28/32; 102.87 bp)

Monday, September 6, 2010

The History of Labor Day

The History of Labor Day

For other Labor Day information, visit our Labor Day 2010 page.

Labor Day: How it Came About; What it Means

Labor Day, the first Monday in September, is a creation of the labor movement and is dedicated to the social and economic achievements of American workers. It constitutes a yearly national tribute to the contributions workers have made to the strength, prosperity, and well-being of our country.

Founder of Labor Day

More than 100 years after the first Labor Day observance, there is still some doubt as to who first proposed the holiday for workers.

Some records show that Peter J. McGuire, general secretary of the Brotherhood of Carpenters and Joiners and a cofounder of the American Federation of Labor, was first in suggesting a day to honor those "who from rude nature have delved and carved all the grandeur we behold."

But Peter McGuire's place in Labor Day history has not gone unchallenged. Many believe that Matthew Maguire, a machinist, not Peter McGuire, founded the holiday. Recent research seems to support the contention that Matthew Maguire, later the secretary of Local 344 of the International Association of Machinists in Paterson, N.J., proposed the holiday in 1882 while serving as secretary of the Central Labor Union in New York. What is clear is that the Central Labor Union adopted a Labor Day proposal and appointed a committee to plan a demonstration and picnic.

The First Labor Day

The first Labor Day holiday was celebrated on Tuesday, September 5, 1882, in New York City, in accordance with the plans of the Central Labor Union. The Central Labor Union held its second Labor Day holiday just a year later, on September 5, 1883.

In 1884 the first Monday in September was selected as the holiday, as originally proposed, and the Central Labor Union urged similar organizations in other cities to follow the example of New York and celebrate a "workingmen's holiday" on that date. The idea spread with the growth of labor organizations, and in 1885 Labor Day was celebrated in many industrial centers of the country.

Labor Day Legislation

Through the years the nation gave increasing emphasis to Labor Day. The first governmental recognition came through municipal ordinances passed during 1885 and 1886. From them developed the movement to secure state legislation. The first state bill was introduced into the New York legislature, but the first to become law was passed by Oregon on February 21, 1887. During the year four more states — Colorado, Massachusetts, New Jersey, and New York — created the Labor Day holiday by legislative enactment. By the end of the decade Connecticut, Nebraska, and Pennsylvania had followed suit. By 1894, 23 other states had adopted the holiday in honor of workers, and on June 28 of that year, Congress passed an act making the first Monday in September of each year a legal holiday in the District of Columbia and the territories.

A Nationwide Holiday

The form that the observance and celebration of Labor Day should take were outlined in the first proposal of the holiday — a street parade to exhibit to the public "the strength and esprit de corps of the trade and labor organizations" of the community, followed by a festival for the recreation and amusement of the workers and their families. This became the pattern for the celebrations of Labor Day. Speeches by prominent men and women were introduced later, as more emphasis was placed upon the economic and civic significance of the holiday. Still later, by a resolution of the American Federation of Labor convention of 1909, the Sunday preceding Labor Day was adopted as Labor Sunday and dedicated to the spiritual and educational aspects of the labor movement.

The character of the Labor Day celebration has undergone a change in recent years, especially in large industrial centers where mass displays and huge parades have proved a problem. This change, however, is more a shift in emphasis and medium of expression. Labor Day addresses by leading union officials, industrialists, educators, clerics and government officials are given wide coverage in newspapers, radio, and television.

The vital force of labor added materially to the highest standard of living and the greatest production the world has ever known and has brought us closer to the realization of our traditional ideals of economic and political democracy. It is appropriate, therefore, that the nation pay tribute on Labor Day to the creator of so much of the nation's strength, freedom, and leadership — the American worker.

Friday, September 3, 2010

FHA Mortgage Insurance Premium Changes that will come in to effect on Oct 4th.

Just wanted to give you all a quick update on the FHA Mortgage Insurance Premium Changes that will come in to effect on Oct 4th. This has been an ongoing discussion for awhile and they just released the final changes yesterday. If you have any buyers who are on the fence right now and are going FHA this may be a way to get them moving quickly.

The changes are as following:

1. UFMIP (Up Front Mortgage Insurance Premium) will go to 1.00% (Currently this rate is 2.25%)
2. Monthly MIP (Mortgage Insurance Premium) will go up to .90% (Currently this rate is .55%) for 30-yr max 96.5% LTV(Loan to Value) loans.
3. Up to 95% LTV, 30-yr will be .85% (Currently this rate is .50%)

Following is an example of how these changes will affect a borrower’s monthly payment:

$200,000 base loan amount
97.75% LTV 30-year forward mortgage

$200,000 + 2.25% UFMIP = $204,500 total loan amt (P&I $1097.80 + MIP $ 91.67) Total PITI = $1189.47
$200,000 + 1.00% UFMIP = $202,000 total loan amt (P&I $1084.38 + MIP $150.00) Total PITI = $1234.38
PITI increase: $44.91/month
In this scenario the payment would INCREASE $44.91/Month. I know this doesn’t sound like a huge number but it could make a difference to a borrower.

Thursday, September 2, 2010

Market Snapshot by Sigma Research by SC Mortgage Assoc

Weekly jobless claims at 8:30 were expected to down just 3K; claims as reported claims fell 3K to 472K; last week was revised up from 475K to 478K. Continuing claims came at 4.456 mil frm 4.4,479 mil; the increase in continuing claims implies no let up ion the unemployment sector. 472K filings is anything but good news.

Q2 productivity revision was expected to have declined 1.7% frm -0.9% originally reported; as released productivity was in line. -1.8%.

Q2 unit labor costs revision were expected to increase to +1.1% frm +0.2%; they were right on at +1.1.

The reaction to the 8:30 data sent stock indexes a little higher and depressed bond and mortgage prices further.

Later this morning July factory orders at 10:00 and July pending home sales.

We do not want to hold rate locks through the day today with the employment report hitting at 8:30 tomorrow; as noted below the bond and stock markets are likely to react with high volatility on the employment data.

The bond and stock markets have been exceptionally edgy over the past two weeks; so edgy that we expect there is a high probability that the August employment report tomorrow will tip the uncertainty and lead to strong moves in the rate and equity markets---particularly if the data deviates from the general consensus....if there is such a thing as a true consensus. The present consensus is a decline in non-farm jobs of 80K with the unemployment rate at 9.6% +0.1% from July; private jobs are expected to have increased 40K to 50K, that stat will be critical to the next move.

The very wild gyrations in the stock and bond markets are strong symptoms that the balance that has held stocks and bonds in a wide range may be about ready to snap. The direction of the movement is obvious; a better than expected employment report will likely invoke a move higher is stocks and a spike higher in interest rates. The jitteriness in the bond market since last Friday suggests those long bonds are increasingly nervous about their position, and the same is true for those that are committed to the short side of the stocks, expecting a huge sell-off. Over the prior two weeks neither side of the trades has been comfortable. Should be an interesting day tomorrow.

Wednesday, September 1, 2010

Market Snapshot by Sigma Research by SC Mortgage Assoc

Wednesday, September 01, 2010
Treasuries opened weaker this morning on news from China that its manufacturing pace has increased. The reaction sent the stock indexes screaming higher, at 9:15 the DJIA +107, the 10 yr note -15/32 at 2.53% +5 bp; mortgage prices holding but down 3/32 (.09 bp) frm yesterday's close. China’s Purchasing Managers’ Index rose to 51.7 last month from 51.2 in July, the Federation of Logistics and Purchasing said. The median forecast of 17 economists in a Bloomberg News survey was for an increase to 51.5. Not a huge improvement but with negative sentiment having increased recently the data was seen as a relief and sent global equity markets higher. Australia also reported better economic news, although it was the Chinese improvements that lead the move higher in stocks and weaker rate markets. Last month the same Chinese PM report was very soft, this month some reprieve.

At 8:15 the ADP August private jobs estimate hit and surprised with a decline of 10K private jobs in the month with markets expecting an increase of anywhere from +13K to +40K new jobs. The report didn't help the bond market however, it didn't dent the strong trade in the stock index futures trading.

At 9:30 the DJIA opened +130, the 10 yr -15/32 2.53% +5 bp and mortgage prices holding well down just 4/32 (.12 bp) frm yesterday's close.

The MBA today released its Weekly Mortgage Applications Survey for the week ending August 27, 2010. The Market Composite Index increased 2.7% on a seasonally adjusted basis from one week earlier. The Refinance Index increased 2.8% from the previous week and is at its highest level since May 1, 2009. The Purchase Index increased 1.8% from one week earlier. The unadjusted Purchase Index was 37.0% lower than the same week one year ago. The four week moving average Market Index is up 5.2%.
The refinance share of mortgage activity increased to 82.9% of total applications from 82.4% the previous week and is the highest refinance share observed since January 2009. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.43% from 4.55%, with points increasing to 1.34 from 0.89 (including the origination fee) for 80% loans. The contract rate is a new low for this survey. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.88% from 3.91%, with points decreasing to 1.45 from 1.64 (including the origination fee) for 80% loans. The contract rate is a new low for this survey.

More data at 10:00; July construction spending, expected to be down 0.6%, was down 1.0%, the lowest in 10 years. The Aug ISM manufacturing index was expected to be weaker than in July but came in better at 56.3 frm 55.5; new orders at 53.1 from 53.3 and employment increased to 60.4 frm 58.6. The ISM data coincides with the data out of China this morning. The DJIA was up about 130 points and immediately jumped to up 233; the 10 yr note yield jumped to 2.60% +12 bp and mortgage prices fell to -11/32 on the day (-.34 bp) frm yesterday's close and -7/32 (.22 bp) frm 9:30.

A Brick Wall? The bellwether 10 yr note, the driver for long term rates, has hit the wall, at least for now. Six times in the last six days the 10 yr has run headlong into resistance when its yield has fallen to 2.48%, it did again yesterday. As we have noted, the huge selling that occurred last Friday has given us cause to reflect on how much lower rates might fall. Friday's jump ion yield on the 10 yr note (17 basis points) was the largest move for the 10 this year and generated technical concerns that a temporary end may be at hand. Still depends heavily on the economic outlook; on the flip side the 10 yr yield shows little signs of increasing, the recent range is tight and rates are so far holding well.