Tuesday, November 30, 2010

Market Snapshot by Sigma Reseach - Tuesday Update

Tuesday, November 30, 2010
Another better start this morning but by 10:00 mortgage prices have fallen back from earlier better levels; the 10 yr at 9:00 +19/32 at 2.75% -8 bp, mortgages up 10/32 (.31 bp). Europe's sovereign debt problems continue to dominate, the impact mostly seen in the currency markets with the dollar continuing to increase. Europe's bank stocks being hit hard as it is increasingly evident that the EU isn't yet ready to face the debt problems head on, letting each country move to the edge before acting. What is lacking is a wider solution to deal with the problems faced by countries in the EU that are close to defaulting. The dollar benefits sending stock indexes lower and safe haven moves into US treasuries. After Ireland Portugal and Spain are now the next two that need a bailout. The US stock market opened weaker, as the dollar increases equity markets fear weaker exports.

At 9:00 the Case/Shiller home price index was expected to show a slight increase in prices, the index fell 0.7% strongly suggesting the housing markets may be headed to a double dip. Q3 home prices fell 1.5% yr/yr and -2.0% from Q2. The report added to selling in stock indexes ahead of the open. It also limited the improvement seen earlier in MBS trading. The gauge fell 0.8% in September from the prior month after adjusting for seasonal variations, the biggest drop since April 2009, following an August decrease of 0.5%. Unadjusted prices fell 0.7% from the prior month. The 20 city index of property values climbed 0.6% from September 2009, the smallest gain since January, the last time prices declined year over year.

The DJIA opened -88 at 9:30; the housing data and Europe's problems setting the early tone. Mortgage prices held gains but were well off the best levels prior to the 9:00 C/S report.

At 9:45 the Nov Chicago purchasing mgrs index, expected at 59.8, jumped to 62.5 frm Oct's 60.6. All sub components were also better; new orders at 67.2 frm 65.0, prices pd at 70.7 frm 68.9 and employment at 56.3 from 54.6 (any index read over 50 is considered expansion, under 50 contraction). The report sent mortgage prices down, from +7/32 to +3/32; the 10 yr note also lost a few clicks and the stock market gained a few points frm down 90 to -70.

At 10:00 the Nov consumer confidence index from the Conference Board; the index was expected at 52.0 frm 50.2 in Oct; it hit at 54.1 and Oct was revised to 49.9; the expectations index also increased, to 74.2 frm 67.5. The confidence index is the best since last June. Not much initial reaction to the better consumer read but mortgage prices slipped once again.

Later this morning the NY Fed will do another QE buy of treasuries; it will not have any direct impact on rate markets however.

The mortgage market remains solidly bearish, the action so far this morning is not encouraging, MBSs opened strong but have been losing ground since. After the 9:45 Chicago purchasing mgrs report 30 yr MBSs fell back to just slightly better on the session. The near term support is coming from the safe haven moves into US treasuries grudgingly dragging prices up.

Monday, November 29, 2010

Market Snapshot by Sigma Research - Monday Report

Monday, November 29, 2010
Last Friday mortgage prices increased a little, but not much; holiday trade generally doesn't amount to much. This morning the bond and mortgage markets opened better with no data points today; this week however, is filled with data beginning tomorrow. The dollar is stronger again this morning, not what equity markets want to see, the stock index futures were lower as a result. The US rate markets are supported on concern the rescue for Ireland will fail to contain Europe’s sovereign-debt crisis, increasing demand for the safety of U.S. government debt. Next up are Portugal and Spain as Europe's debt issues show little signs of being contained. The tensions between South and North Korea continue to be a concern but so far as these kinds of face offs go, it hasn't been a major impact on the markets.

Christmas shopping (yes, I said Christmas) was slightly stronger than last year. Consumer spending on Black Friday was up about 0.3%, with most retailers better but still remains an unfinished story. Not anyway scientific, I was out briefly on Sunday and wasn't impressed with what I saw at the most prestigious malls in Indy, not as much traffic as one would have expected. Most analysts expect stronger Christmas sales than last year, but refrain from becoming too optimistic.

More QE 2 Fed buying today; the Fed is scheduled today to buy $1.5B to $2.5B of Treasuries due from February 2021 to November 2027 and $6B to $8B in government debt maturing from May 2013 to November 2014. The central bank plans to focus about 86% of its purchases on notes due in 2.5 years to 10 years, leaving the 30- year bond as the security that most closely reflects market expectations for inflation. Since the Fed’s Nov. 3 announcement, the 30-year yield rose 0.28 percentage points, suggesting growing investor confidence in the central bank’s efforts to avoid deflation as the economy expands.

This Week's Economic Calendar:
9:00 am Case/Shiller 20 city home price index (+1.0%)
9:45 am Chicago purchasing mgrs index (59.8 frm 60.6 in Oct)
7:00 am Weekly MBA mortgage applications
8:15 am ADP employment data (+58K new private job growth)
8:30 am Q3 productivity (+2.4% frm +1.9%)
Q3 unit labor costs (-0.4% frm -0.1%)
10:00 am Nov ISM manufacturing index (56.4 frm 56.9 in Oct)
2:00 pm Nov auto and truck sales (autos 3.71 mil, trucks 5.35 mil)
Fed's Beige Book (detailed report on the economy)
8:30 am weekly jobless claims (+16K to 423K: con't claims 4.20 mil frm 4.182 mil)
10:00 am Oct pending home sales (unch frm Sept)
8:30 am Nov employment data (non-farm jobs +130K, non-farm private sector jobs +140K; unemployment unchanged at 9.6%)
10:00 am ISM Services sector index (Nov 55.0 frm 54.3 in Oct)
Oct factory orders (-0.8%)

Treasuries and mortgages remain technically bearish; it will take a huge rally to change that, and that isn't in the cards currently being dealt. The economic outlook is improving, the Fed is intent in getting the inflation rate back into its comfort range, 2.0% frm the present 0.8%. The recent spike higher in rates reflects that, however it is unclear how high the 10 yr rate has to increase to satisfy traders and investors and completely discount the Fed's target. Sovereign debt problems in Europe are presently helping support the US bond market with some safety buying; likely Europe's debt issues will fade as they have recently whenever another country makes the headlines.

Wednesday, November 24, 2010

Market Snapshot by Sigma Research - Wednesdays' Update

Wednesday, November 24, 2010
Treasuries and mortgages being hit again this morning after some minor improvement yesterday; the economic releases early this morning were stronger than expected for weekly claims, weaker on durable goods orders and Oct personal income and spending a little firmer; the three 8:30 releases pushed prices lower. Weekly jobless claims were the lowest since July 2008, declining 34K to 407K filings, continuing claims at 4.182 mil from 4.324 mil. Oct personal income increased 0.5% and spending +0.4%. Oct durable goods orders were weaker, down 3.3% and ex transportation orders down 2.7%, forecasts were for -0.3% and +0.4% ex transportation orders (aircraft).

Treasuries were already weaker prior to the 8:30 data and suffered more when the data hit. Mortgage markets continue to be heavy and at times are seeing more selling than treasuries. The S.Korea shelling yesterday by N. Korea drove a little safety into treasuries but by today the situation has cooled; N. Korea trying to get attention from the US and S. Korea over their nuke concessions and wanting more aid as that economy is still in the dark ages.

At 9:30 the DJIA opened +80 on the decline in weekly claims and slightly better personal income in Oct. The 10 yr note at 9:30 -12/32 at 2.83% +5 bp and mortgage prices -14/32 (.44 bp) frm yesterday's close.

At 9:55 the U. of Michigan consumer sentiment index expected at 69.4 frm 69.3 at mid-month was a lot stronger at 71.6; at the end of Oct the index was 67.7; the 12 month out expectations was 64.8 frm 61.9. The stronger sentiment firmed the view that consumers are slowly becoming more optimistic; however, the sentiment can swing wildly based on momentary news.

At 10:00 Oct new home sales, expected up 3.6%, fell 8.1% to 283K units annualized. The median sales price $194,900 frm $226,300.00. Oct wasn't good for home ales, yesterday existing sales fell 2.2%.

The last scheduled event this week; at 1:00 Treasury will auction $29B of 7 yr notes. Yesterday's 5 yr note auction didn't meet with good demand, the bidding was weaker than the average of the last 10 5 yr auctions. Today's 7 yr may also find demand soft.

By 2:00 this afternoon trading floors will be thin as many leave for the long holiday weekend; nevertheless markets will continue their normal times. On Friday staffing will be minor, markets will function until 1:00 PM.

Once the 7 yr auction is done markets will likely slow trading until next Monday; keep locked there is no reason we can think of that would merit floating with the negative outlook now.

We will have reports on Friday since the markets are open until 1:00. In the meantime, we wish you all a VERY HAPPY THANKSGIVING!

Market Snapshot by Sigman Research - Tuesdays Update

Tuesday, November 23, 2010
Moves to safety one more time; after months with safe haven moves being closed out in the treasury markets as things settled in Europe and China its back to some momentary fear. The fear factor is driving bonds and mortgages higher in price and lower in rates this morning. Even with the Q3 GDP revision stronger than expected, to +2.5% frm +2.0% on the advance report the flight to safety is trumping economic performance; the DJIA at 9:00 down 100 points, the 10 yr note yield at 2.74% -6 bp and mortgage prices +10/32 (.31 bp).

North Korea lobbed dozens of artillery shells on the S. Korea island Yeonpyeong. The two countries are still technically at war; recently increased tensions have pushed N. Korea's belligerent attitude to another level. The shelling, according to reports, killed some S. Koreans. S. Korea has so far restrained its response; it did scramble fighter jets and returned fire. A developing story.

Yesterday Ireland got its financial package worked out with the IMF and ECB, another save. Next up it will likely be Portugal, then Spain. One after the other are falling like those dominos.

Another hit for US equities this morning; China’s biggest banks are close to reaching annual lending quotas and plan to stop expanding their loan books, according to four people with knowledge of the matter. China has been moving to slow its growth and fight off inflation, that banks are not likely to lend more this year has some significance but this is mid-Nov, they don't have to wait long before new quotas kick in for next year. China’s regulators are monitoring banks’ loan balances on a daily basis to ensure the official target of 7.5 trillion yuan ($1.1 trillion) in new lending for 2010 isn’t exceeded, the people said. China’s government in the past month stepped up a campaign to limit credit expansion after inflation quickened and property prices surged.

At 10:00 Oct existing home sales, expected to decline 2.5%, were down 2.2% to 4.43 mil units (annualized). The median sales price $170,500.00, at the present pace there is a 10.5 month supply of existing homes on the market, 34% of sales in Oct were distressed sales.

At 1:00 Treasury will auction $35B of 5 yr notes; yesterday the 2 yr auction was well bid, likely the 5 today will also draw strong demand.

At 2:00 this afternoon minutes from the Federal Reserve’s meeting this month may help explain why policy makers decided to supply the world’s largest economy with an additional $600 billion in monetary stimulus. The report will also contain the Fed’s updated economic forecasts. Normally the minutes attract interest but this meeting will add additional interest. The Fed has been roundly questioned within and without the US for its decision to buy another $600B of US treasuries, possibly some new information in the minutes.

The dollar is strengthening this morning on the S.Korea situation adding to the weak stock market and supporting the bond and mortgage markets. The mortgage market remains technically bearish but with the international tensions up at the moment and equity markets under pressure the rate markets are improving. As noted yesterday, it will take a sizeable rally in the mortgage markets to even test its key resistance levels. If you float today, stay close in case markets soften.

Monday, November 22, 2010

Market Snapshot by Sigma Research

Monday, November 22, 2010
Interest rate markets doing better this morning with markets moving into holiday mode. Thanksgiving week usually is quiet however these times are in themselves very unusual so we won't relax. There are no economic releases scheduled today; all the data this week hits on Tuesday and Wednesday, Thursday markets are closed of course and will close early on Friday ( US markets can't stand a four day weekend).

Today Treasury will begin its usual end of the month auctions; this afternoon at 1:00 $35B of 2 yr notes will go up fro bids, tomorrow its $35B of 5 yr notes and Wednesday $29B of 7 yr notes. With the recent increases in interest rates traders are looking for better demand than what we have seen in recent auctions; weak demand if it occurs will not be well received in the rate market trading.

Although it is a holiday week, there are a number of key data points to consider. Existing and new home sales, Q2 GDP, and durable goods orders headline the week.

This Week' Economic Calendar:
1 :00 pm $35B 2 yr note auction
8:30 am Q2 preliminary GDP (+2.4% frm +2.0% on the advance report last month)
10:00 am Oct Existing home sales (-2.5% to 4.42 mil annualized)
1:00 pm $35B 5 yr note auction
2:00 pm FOMC meeting minutes from 11/3 meeting
8:30 am Oct personal income and spending (income +0.4%, spending +0.5%)
Oct durable goods orders (-0.3%, ex transportation orders (+0.4%)
Weekly jobless claims (+2K to 442K; continuing claims 4.280K frm 4.295K)
9:55 am U. of Michigan consumer sentiment index (69.4 frm 69.3)
10:00 am Oct new home sales (+1.6% to 312K frm 307K annualized)
1:00 pm $29B 7 yr note auction
1:00 early closes

Last week with rates running higher daily, the 10 yr note found a little support at 2.96% after running to it three times and unable to break out. Today the 10 yr note at 2.82% down 6 bp so far this morning. Mortgage prices also improving today. The outlook still remains negative for interest rates but as we have noted on more than a few occasions we are not expecting US interest rates to continue to climb much more. IN the long run, yes, rates are likely to escalate, however in the near term expect the bond and mortgage markets to consolidate at or near the present levels. Don't look for rates to decline back to the lows we had two months ago; we believe the lows in rates have already been achieved. This week being a shorten one expect markets to remain bearish but quiet. The FOMC minutes tomorrow will draw heavy attention, the meeting when the Fed officially announced the $600B QE 2 that has not been universally accepted even by current and former Fed officials.

Friday, November 19, 2010

Market Snapshot by Sigma Research

Friday, November 19, 2010
No data today to think about; the interest rate markets opened quietly this morning for a welcome change after the high volatility this week. In pre-market trading early this morning the key stock indexes were weaker after a strong rally yesterday took the DJIA up 173 points. At 9:00 the DJIA futures traded down 45, the 10 yr note +2/32 and mortgage prices -1/32 (.03 bp). Stocks in Europe and U.S. index futures fell as China added to efforts to limit the threat from the fastest inflation in two years.

The war of words escalated to outright direct criticism of China's refusal to increase the value of its currency. Bernanke last night in a speech in Frankfurt took the gloves off and warned China it must let the yuan increase or run the risk of pushing the world back into another leg of this recession. Meanwhile China is apparently willing to aggressively fight the Fed's QE as well as its exploding inflation rate. China’s cabinet this week unveiled a package of anti- inflation measures including crackdowns on speculation in agricultural products and a threat of price caps on “daily necessities.” China's argument against the Fed's easing move is that it will drive hot money into Asia and increase inflationary concerns. Bernanke wants the US inflation level to increase to keep deflation at bay.

Bernanke in Frankfurt continued to defend his QE move; saying it will aid the world economy, and implicitly criticized China for keeping its currency weak. The best way to underpin the dollar and support the global recovery “is through policies that lead to a resumption of robust growth in a context of price stability in the United States,” Bernanke said. Countries that undervalue their currencies may eventually inhibit growth around the world and risk financial instability at home, he said. The increasing disagreement between the two strongest economies in the world is one of the key issues driving interest rates higher; the Fed is intent on increasing the level of US inflation to avoid what drove the Great Depression as deflation of assets made it much worse. China in the meantime is making moves to stop its inflation spiral, keeping the yuan from increasing is one tool being used, but the risks to global recovery increase with it.

Bernanke has used all the bullets he has; it now has to be turned over to Congress and the Administration; the Fed can't do anymore. Monetary policy has limits, now we need fiscal changes. Already the squabbles are building in Congress and the Administration even before the newly constituted Congress is seated.

The Fed will buy another skimpy amount of QE 2 today; about $1.5B of long dated maturities (2028 to 2040). One of a few buys that are at the longer end of the yield curve. The 30 yr bond is rallying however not much change in the bellwether 10 yr note or in mortgage prices. We are focusing now on the 10 yr note yield at 2.96%, the level that has so far held selling. Mortgages are also working hard to hold support, the 200 day moving average and chart support at 98.00 (at 9:45 98.31 bp).

Expecting a quiet day today after the week's very volatile swings; no data and the weekend ahead. Next week more Treasury borrowing; $35B 2 yr note auction on Monday, $35B 5 yr note on Tuesday and $29B of 7 yr notes on Wednesday.

Thursday, November 18, 2010

This Month in Real Estate (US) : November 2010

Market Snapshot by Sigma Research

Thursday, November 18, 2010
Weekly jobless claims were up just 2K last week to 439K, maintaining the level below 450K a psychological level markets have been focused on over the past six months. The total number of people collecting unemployment insurance dropped to the lowest level in two years, while those receiving extended payments climbed. The four-week moving average, a less volatile measure than the weekly figures, dropped to 443K, the lowest level since September 2008. The number of people continuing to receive jobless benefits fell by 48,000 in the week ended Nov. 6 to 4.3 million. The continuing claims figure does not include the number of Americans receiving extended and emergency benefits under federal programs. Those who’ve used up their traditional benefits and are now collecting emergency and extended payments increased by about 121K to 4.93 million in the week ended Oct. 30. The employment situation is still at unacceptable levels, but that claims are stabilizing implies companies are no longer firing as many although not yet hiring in any significant way.

The equity markets were impressed with the claims data, pushing the DJIA futures trade up 82 points and pointing to a strong opening at 9:30. The dollar is being hit again against the euro currency this morning, adding to the strong opening in equities and pushing interest rates up. At 9:00 mortgage prices were -.50 basis points from yesterday's close; the 10 yr note rate at 2.92% was up 5 basis points. At 9:30 the DJIA opened +85, the 10 yr -8/32 at 2.91% +4 bp and mortgage prices -15/32 (.47 bp) frm yesterday's close.

Yesterday Ben Bernanke told a group of Senators in a private meeting that the Fed's QE would add 700K to 1 mil jobs over the next two years. While we still wonder out loud why the easing move would do that; the Fed is convinced adding $600B of new money into the economy will ignite businesses to spend, consumers to buy and potential home buyers to be motivated on climbing rates to not delay. It is now two months since the Fed said it would do another QE, so far there has been no consensus among economists, Fed officials and the markets that it will help. Other central bankers in Europe and Asia have also questioned the Fed's decision. "Elevated" unemployment and "low" inflation prompted Federal Reserve policy makers to announce a second round of large-scale asset purchases. "The unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to "levels" policy makers view as consistent with their mandate, the Fed said in its Nov. 3 statement. The continual comments from most Fed officials that inflation is too low has been driving interest rates higher.

At 10:00 Oct leading economic indicators, expected up 0.6%, was on target +0.6%; Sept was revised from +0.3% to +0.5%.

Also at 10:00 the Nov Philadelphia Fed business index, expected at 4.5 frm 1.0 in Oct, jumped to a huge 22.5. New orders component 10.4 frm -5.0; prices pd at 34.0 frm 31.5 and employment component at 13.3 frm 2.4. The very strong Philly data immediately drove interest rates higher pushing prices down. The Philly Fed index is considered a significant report on business activity in the NE region. The DJIA jumped 50 points immediately from an already strong trade. By 10:05 mortgage prices were trading down 6/32 (.18 bp) frm 9:30 levels noted below.

Wednesday, November 17, 2010

The 5 Biggest Factors That Affect Your Credit

The 5 Biggest Factors That Affect Your Credit
by Amy Fontinelle
Tuesday, November 16, 2010
provided by

A credit score is a number that lenders use to determine the risk of lending money to a given borrower. Credit card companies, auto dealerships and mortgage bankers are three common examples of types of lenders that will check your credit score before deciding how much they are willing to lend you and at what interest rate. Insurance companies, landlords and employers may also look at your credit score to see how financially responsible you are before issuing an insurance policy, renting out an apartment or giving you a job.
In this article, we'll explore the five biggest things that affect your score: what they are, how they affect your credit, and what it all means when you got to apply for a loan.
[Click here to check current credit including rates and terms.]
Credit Basics
Your credit score shows whether you have a history of financial stability and responsible credit management. It can range from 300 to 850, but the higher the score, the better. Three credit agencies - Experian, Equifax and TransUnion - compile credit scores (also known as FICO scores) based on the information in your credit file. Each agency will report a slightly different score, but they should all paint a similar picture of your credit history.
[call Credit Score Perfectionists to Reveal How It's Done]
Payment History - 35%
The most important component of your credit score looks at whether you can be trusted to repay money that is lent to you. This component of your score considers the following factors:
• Have you paid your bills on time for each and every account on your credit report? Paying bills late has a negative effect on your score.

• If you've paid late, how late were you - 30 days, 60 days, or 90+ days? The later you are, the worse it is for your score.

• Have any of your accounts gone to collections? This is a red flag to potential lenders that you might not pay them back.

• Do you have any charge offs, debt settlements, bankruptcies, foreclosures, suits, wage attachments, liens or judgments against you? These are some of the worst things to have on your credit report from a lender's perspective.
Amounts Owed - 30%
The second-most important component of your credit score is how much you owe. It looks at the following factors:
• How much of your total available credit have you used? Less is better, but owing a little bit can be better than owing nothing at all because lenders want to see that if you borrow money, you are responsible and financially stable enough to pay it back.

• How much do you owe on specific types of accounts, such as a mortgage, auto loans, credit cards and installment accounts? Credit scoring software likes to see that you have a mix of different types of credit and that you manage them all responsibly.

• How much do you owe in total, and how much do you owe compared to the original amount on installment accounts? Again, less is better.
Length of Credit History - 15%
Your credit score also takes into account how long you have been using credit. How many years have you been using credit for? How old is your oldest account, and what is the average age of all your accounts?
A long history is helpful (if it's not marred by late payments and other negative items), but a short history can be fine too as long as you've made your payments on time and don't owe too much.
New Credit - 10%
Your FICO score considers how many new accounts you have. It looks at how many new accounts you have applied for recently and when the last time you opened a new account was.
The score assumes that if you've opened several new accounts recently, you could be a greater credit risk; people tend to open new accounts when they are experiencing cash flow problems or planning to take on lots of new debt.
For example, when you apply for a mortgage, the lender will look at your total existing monthly debt obligations as part of determining how much mortgage you can afford. If you have recently opened several new credit cards, this might indicate that you are planning to make a bunch of purchases on credit in the near future, meaning that you might not be able to afford the monthly mortgage payment the lender has estimated you are capable of making. Lenders can't determine what to lend you based on something you might do, but they can use your credit score to gauge how much of a credit risk you might be.
Types of Credit In Use - 10%
The final thing the FICO formula considers in determining your credit score is whether you have a mix of different types of credit, such as credit cards, store accounts, installment loans and mortgages. It also looks at how many total accounts you have. Since this is a small component of your score, don't worry if you don't have accounts in each of these categories, and don't open new accounts just to increase your mix of credit types.
What Isn't In Your Score
The following information about you is not reported to credit bureaus and is not reflected in your credit score:
• Marital status
• Age
• Receipt of public assistance
• Salary
• Occupation
• Employment history
• Rental agreements
• Participation in a credit counseling program
What It All Means When You Apply for a Loan
Following the guidelines below will help you maintain a good score or improve your credit score:
• Watch your credit utilization ratio. Keep credit card balances below 15-25% of your total available credit.

• Pay your accounts on time, and if you have to be late, don't be more than 30 days late.

• Don't open lots of new accounts all at once

• Check your credit score about six months in advance if you plan to make a major purchase that will require you to take out a loan, like buying a house or a car. This will give you time to correct any possible errors and, if necessary, improve your score.

• If you have a bad credit score and lots of flaws in your credit history, don't despair. Just start making better choices and you'll see gradual improvements in your score as the negative items in your history become older.
The Bottom Line
While your credit score is extremely important in getting approved for loans and getting the best interest rates available, you don't need to obsess over the scoring guidelines to have the kind of score that lenders want to see. In general, if you manage your credit responsibly, your score will shine.

Market Snapshot by Sigma Research

Wednesday, November 17, 2010
Early economic releases at 8:30 helped hold the rate markets. Oct CPI +0.2% with forecasts at +0.3%, the core CPI (ex food and energy) unchanged. Yr/yr CPI +1.2%, the core yr/yr +0.6%, the lowest yr/yr ever recorded. Oct housing starts, expected down 1.7% declined a huge 11.7%; Sept housing starts were revised from +0.3% to -4.2%. Oct building permits expected up 4.6% were up just 0.5%. Doesn't require much ink to point out the depressed housing markets continue with little improvement. Most of the decline in starts however were multi-family declines.

The inflation report might be looked at as a bad report with the Fed wanting inflation to increase. The Fed is about as divided as I have seen in a long time; yesterday two Fedsters on opposite sides. St. Louis Fed Bullard and Boston Fed Rosengren. Bullard says "possibility" Fed won't buy all $600B followed by Rosengren who "Fully" sees completing $600B purchase. No wonder the bond and mortgage markets (the long end of the yield curve) are in turmoil, the bickering back and forth within the Fed is unnerving.

The initial reaction the two data points at 8:30 was minor selling, likely on the weak inflation data. By 9:00 however the 10 yr note traded unchanged on the day while mortgage prices were better by .31 bp (+10/32). Both the bond and mortgage markets are oversold in the near term pushing hot money traders to take profits from the huge decline in prices and jump in rates. Any gain in mortgage prices is welcome, however it will take a sizeable run up in prices to change the wider bearish outlook. With markets still confused about the Fed's $600B buy of treasuries market volatility is likely to continue.

Who really understood what the impact of the QE 2 would have on the bond market, the currency markets and the equity markets? Given what markets have done over the last 10 days it is reasonable to say, no one had a clue. Most believed the Fed would buy at the long end of the curve to force the 10 yr note yield lower and push mortgage rates to new lows. The magnitude of the recent selling suggests there were heavy long positions built into prices; when it became known the Fed would not buy much at the long end of the curve the bailing drove rates higher in constant selling days; the 10 yr note yield jumped 34 basis points since Monday 11/3, mortgages about the same. In the meantime the world saw the easing move as the Fed's decision to try and crash the dollar to increase US exports, the dollar isn't falling as expected but it isn't strengthening either. China flexing its muscle, lowered US debt ratings; a shot across the bow in the increasing rancor over the US wanting the Chinese to increase its currency to level the competitive edge it holds?

The MBA today released its Weekly Mortgage Applications Survey for the week ending November 12, 2010. The Market Composite Index decreased 14.4 percent on a seasonally adjusted basis from one week earlier. The Refinance Index decreased 16.5% from the previous week and is at the lowest level observed since July of this year. The seasonally adjusted Purchase Index decreased 5.0% from one week earlier, the first decrease after three consecutive weekly increases. The four week moving average for the seasonally adjusted Market Index is down 2.8%. The four week moving average is up 1.3% for the seasonally adjusted Purchase Index, while this average is down 3.7% for the Refinance Index. The refinance share of mortgage activity decreased to 80.3% of total applications from 81.7% the previous week. The adjustable-rate mortgage (ARM) share of activity remained constant at 5.3 percent of total applications. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.46% from 4.28%, with points increasing to 1.13 from 1.04 (including the origination fee) for 80% loans. This is the highest 30-year fixed-rate observed in the survey since the week ending September 10, 2010. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.87% from 3.64%, with points decreasing to 0.91 from 1.08 (including the origination fee) for 80% loans. This is the highest 15-year fixed-rate observed in the survey since the week ending September 17, 2010.

Mortgage markets deserve some retracement after the beat down over the last 10 days; however to shake off the present bearishness it will take a strong rally in prices to turn the corner. Given the current confusion over QE 2 and whether it is helping or hurting interest rates it is unlikely rates will return to the lows prior to this bearish price declines. We continue our outlook that mortgage interest rates have seen their best days. Unless the so-called economic recovery completely aborts interest rates while not increasing dramatically, have seen their day in the sun.

Market Snapshot by Sigma Research

Tuesday, November 16, 2010
A little better look this morning in the bond and mortgage markets. The huge and swift selling over the past week or so has the markets technically oversold now based on our momentum oscillators. Should support the markets for a day or so. Even with a retracement though it will not likely change the near term bearishness that has infected the rate markets. No one wants US treasuries now and that will be the case until rates move high enough to attract interest again. The QE 2 move from the Fed has been globally criticized; China lowered the US debt rating, Brazil, Germany and other key European countries have made it clear they believe the Fed's printing of $600B to buy US treasuries will drive the dollar lower and potentially lay the foundation for a currency war. Every exporting nation wants a weaker currency to gain a competitive advantage; the US was roundly rejected again by China to increase their yuan.

U.S. stocks and Treasuries declined yesterday as a group including former Republican government officials, economists and hedge-fund manager Cliff Asness urged Federal Reserve Chairman Ben S. Bernanke to halt his expansion of monetary stimulus, saying it risks an inflation surge. Fed Bank of New York President William Dudley said in an interview with CNBC that the central bank’s bond purchases won’t cause an inflation problem.

The rate markets see the QE as inflationary and are cutting bond holdings in a mass selling run. Interest rates have increased 40 basis points on the bellwether 10 yr note in the last 10 sessions; mortgage rates up about 30 basis points. The Fed continues to speak of its desire to increase the rate of inflation to avoid potential deflation in the economy. Bernanke believes that a small increase in the rate of inflation will stimulate more consumer spending and eliminate a Japanese style long term deflationary economy. All one needs to know is that fixed income investors abhor any move up in the rate of inflation. In this instance with long term rates as low as they continue to be, an increase of just 1.0% in the inflation rate reduces the real rate of return by that amount, leaving investors with a real return of 1.9% and that is not good enough to continue funding the US deficits.

At 8:30 this morning Oct producer price index hit at +0.4%, half of what was widely expected; the ore rate (ex food and energy components) was expected at +0.1% but actually declined 0.6% with the yr/yr core rate of inflation at +1.6%. A positive for the the bond markets but didn't light any additional fires to the skimpy rally earlier.

At 9:15 this morning Oct industrial production was unchanged with markets expecting an increase of 0.3%. Oct factory usage was also unchanged with forecasts of 74.9% it hit at 74.8%, unchanged from Sept that was revised to 74.8% frm 74.7%. No increase in production or factory use; but manufacturing rose 0.5% after a 0.1% increase in September that was previously reported as a 0.2% drop. Total production was little changed by the biggest drop in utility use in six months that was probably caused by unseasonably mild temperatures last month. The headline looked soft but the guts were better with the increase in manufacturing.

The DJIA opened down 80 points at 9:30, the 10 yr note +24/32 at 2.87% -9 bp and mortgage prices +11/32 (.34 bp). Rate markets are momentarily oversold so a rebound is not unexpected. It would take a rather substantial rally now to reverse the bearish outlook. The Fed's easing move has unnerved traders and investors; it is unprecedented leaving markets confused. With interest rates at historic lows any uncertainty will rock markets hard as we have witnessed over the past week. Longer term; we believe the bull market in interest rates is over. Rates have already hit their lows and unlikely will fall back much unless the economy tumbles over, and that appears unlikely now.

At 10:00 the Nov NAHB home index was at 16 as expected, up 1 point from Oct which was revised lower by 1 point. the index is the highest since June but is still in depressed levels. The expectations for buyers over the next six months increased to 25, the highest since last May. No reaction to the report as usual.

Market Snapshot by Sigma Research

Monday, November 15, 2010
It is a massive dumping of US treasuries, selling has been exceptionally strong the past week and about the only hope now is that the momentum oscillators are reaching oversold levels. The bond market is seen now as the least desirable investment compared to equities and commodities. The Fed's continual comments that the inflation rate is too low have finally flipped investors and traders; along with the complete failure of QE 2 to push rates lower. Unless there is a huge negative economic decline the end has come for low rates; this morning at 8:30 Oct retail sales, expected up 0.7%, jumped 1.2%, ex auto sales +0.4% as expected. Stronger sales drove the stock indexes a little higher implying a better open ion stocks at 9:30.

Also at 8:30 the NY Empire State manufacturing index hit; very weak at -11.4 frm +16.73 in Oct. Markets ignored the huge decline with the excuse that NY is not a big manufacturing state. Heard that many times before, but curious that when the regional report is better than expected there isn't any of that kind of reaction. The sub-components in the rep-ort were equally weak; employment index fell to 9.09 frm 21.67, new orders fell to -24.38 frm +12.90 and prices received at -2.60 frm +8.33. ( any index over zero is considered expansion, under zero contraction).

At 10:00 Sept business inventories, expected up 0.9%, hit right on at +0.9%; final sales up 0.5%. The inventory to sales ration 1.27 months unchanged from Aug. The DJIA dropped a little on the report and rates markets saw a slight bounce.

Congress gets back to business today, if that is what we can call it; a lame duck session with 100 new members in the House isn't expected to accomplish much. The only issue that needs to be acted on is the extension of the Bush tax cuts set to run out at the end of the year. Likely there will be an extension for a short period until next year when the real work and political bickering gets started. Washington is not working! Yet so far there isn't much evidence that it is about to change. Voters tossed out Democrats, just as two years ago they tossed out Republicans, still politicians appear clueless as to what has to be done by both parties.

The recent increase in US interest rates is among other issues reflective of the world's disappointment that the Fed decided to print another $600B. Criticism is widespread and is one factor driving rates higher now. China has downgraded its credit rating for US debt; S. Korea ignored and refused US pressure fro a new trade deal, Europe and Asian countries are protesting the QE move. The underlying view of the US now is that our political system is unable to come to any meaningful consensus on most of the very critical problems we face. Last week the bi-partisan commission set up by Pres Obama to study and come up with ideas to begin witling away the US exploding deficit was summarily dismissed by both parties almost immediately as unworkable. The world is watching and what they see is Washington castrated and lead around by special interests while the US fiddles away.

This Week's Economic Calendar:
8:30 am Oct retail sales +1.2%
NY Empire State manufacturing index -11.4
10:00 am Sept business inventories
8:30 am Oct PPI (+0.8%, ex food and energy +0.1%)
9:15 am Oct industrial production (+0.3%)
Oct capacity utilization (74.9% frm 74.7%)
10:00 am NAHB housing index (15.0 frm 16.0)
7:00 am MBA weekly mortgage applications
8:30 am Oct CPI (+0.3%, ex food and energy +0.1%)
Oct housing starts and permits (starts -1.7%, permits up 4.6%)
8:30 am weekly jobless claims (+7K to 442K)
10:00 am Oct leading economic indicators (+0.6%)
Nov Philadelphia Fed business index (+4.5 frm +1.0 in Oct)

At 9:30 this morning mortgage prices were down 20/32 (.62 bp) by 10:00 a little better, down 13/32 (.41 bp). The rate markets are oversold with the massive selling over the last week; expect some support in the near term but the trend is decidedly bearish and rates will likely move higher over the next few months unless there is a huge change in economic outlook or the Fed jawbones that inflation, while expected to increase as it wants, won't be allowed to head much higher. Unlikely though that the Fed has as much jaw power it usually has after what presently looks like a failed attempt to stimulate the economy. There are however some out there that are touting the success of QE 2 already with increases in inflation fears. Investors are paying eight times more than in April for options on interest-rate swaps that protect against rising yields relative to those that bet on them falling. Bonds that compensate for higher consumer prices also show heightened inflation expectations.

Sunday, November 14, 2010

Market Snapshot by Sigma Research

Sunday, November 14, 2010
This Week; after a serious bout of selling last week in the bond and mortgage markets that jumped mortgage rates up 12 basis points, we look for a little improvement. However, it is unlikely the bearish outlook and technical picture will change. The overwhelming bullish outlook for rates on the QE move has not matched the earlier enthusiasm that drove traders and investors in a buying binge until the details were laid out on Nov 3. What markets were expecting was more Fed buying at the long end of the curve, 10 yr note specifically, the Fed didn't do it. Most of the scheduled Fed treasury buying over the next six months will be at the 5 yr note and 3 yr note area.

This week has a plate full of economic releases after very little economic news last week. Inflation reads on the producer price index and the consumer price index will get a close look from traders. Inflation is one reason the long end of the yield curve ( 10 yr notes, mortgages) are unlikely to experience much in the way of lower rates. The Fed has on many recent occasions made it abundantly clear it wants the level of inflation higher to avoid the potential of the US falling into a Japanese type deflationary economy. Three months ago we warned that the lows in the mortgage interest rates had likely been achieved and so far that has held with the exception of a very brief run when the Fed indicated it was prepared to print more money (ease) on Sept 21st at the conclusion of the FOMC meeting. We continue to believe the lows have been met and that mortgage rates while not likely to spike a lot higher in the next few months, won't decline much from present levels.

Friday, November 12, 2010

Market Snapshot by Sigma Research

Friday, November 12, 2010
Interest rates continue to increase; the biggest hits coming in the MBS markets but treasuries are leading the way higher for rates. The dollar is weaker this morning pushing the stock indexes lower in early traded. Yesterday the bond and mortgage markets were closed for Veteran's Day while equity markets were open; the DJIA fell 74 points yesterday on reports out of the G-20 meeting in Seoul S Korea that there is still no agreement on any co-operation among nations to control the value of their respective currencies and avoid a potential currency war. Each major exporting nation wants the dollar to firm, while the US is moving the drive the dollar lower. Pres Obama walked away from the G-20 meeting with nothing other than being criticized for the US easing policy. G-20 leaders agreed in Seoul to a framework aimed at stemming imbalances in trade and capital flows that risk roiling the global economy. Finance ministers will next year work on developing a set of early warning indicators, they said in their joint statement; just more bureaucratic jargon.

President Obama said the U.S. Federal Reserve’s second round of quantitative easing is designed to boost growth, not affect the value of the dollar, rebuffing charges that America is seeking a weaker exchange rate. Greenspan doesn't agree, in comments in the Financial Times saying the QE is a policy of pursuing a weakening dollar. Obama and Bernanke are being globally criticized for the move by the Fed. Trying to spin the easing as a boost for the US economy can only be seen as a decision to drive the dollar lower. Although the Fed is concerned about deflation, that is being read as an excuse to beat down the dollar by many countries, including of course China, Brazil and Germany. Overall the President didn't accomplish anything at the G-20 meeting. As far as the easing move helping improve US growth, we have argued since its inception it would not likely have much immediate impact. Can't hammer it enough that the Fed is more intern in increasing inflation levels in and effort to avoid deflation; the result is interest rates are exploding higher at the long end of the curve and pulling mortgage interest rates higher. Neither the Fed or the Administration or Congress has a plan to aid the housing recovery, never had and don't have one now; the result, mortgage rates increasing adding another hurdle for recovery.

Today the NY Fed will begin purchasing notes, the beginning of actual QE. The NY Fed announced the details of its buys on Wed, outlining the schedule from today through Dec 9th. IN that period the purchases of treasuries will total $105B; $75B of QE and $30B of re-invested principle pay downs on the $1.25T of MBSs bought to support the mortgage markets a year or so ago (ended at the end of last March). So far the markets are not being supported on the announcement. If looking for just one thing to focus on in this chaotic global turmoil over currency levels and debt crises; its inflation, mortgage rates and long dated treasuries are increasing in rates as a result.

The U.of Michigan consumer sentiment index, the only data today, was expected at 69.0 frm 67.7, it was about on target at 69.3; the expectations index at 62.7 from 61.9 was less than the 63.5 estimate. No market reaction to the indexes.

Tuesday, November 9, 2010

Market Snapshot by Sigma Research

Tuesday, November 09, 2010
Treasuries and mortgages opened flat this morning; however in very early trading in Europe the 10 yr note was stronger but drifted back as the US markets opened. Still no buying interest on the QE move and continuing to confuse many. The easing move hasn't and won't likely do what most thought when the Fed said it would add more treasuries to its balance sheet with $600B more over the next six months. After a couple of weeks of enthusiasm that the easing move would drive down mortgage rates and treasuries it faded away and interest rates have not seen much change going back to 9/21 when the FOMC telegraphed the easing. So what good has it done? So far very little.

The economy is slooowly improving, like the snail crawling through syrup, with interest rates at 50 year lows investors are finding greener grasses in equities and commodities. With comments from the Fed that it wants the inflation level to increase about 1.0% frm the present level to ward off deflation, it is becoming clear the long end of the rate curve is not going to bite on the easing. The initial thought when the Fed said it was prepared to buy more assets was that the Fed would buy longer dated treasuries; the Fed has implied the buying will be at the so-called belly of the curve, 3s to 7s with a minor amount in 10s. Of course the Fed can change at anytime and move more to the long end, but that isn't likely in the near term. The long end including mortgages are being held ion check over the inflation increases the Fed wants; with the 10 yr note at 2.55% a 1% increase in the level of inflation would provide a real rate of return to investors of 1.55%, we don't believe there is any market for that potential return. As long as the economy is grinding forward, even at this snail's pace long term interest rates are not likely to decline.

At 9:30 the DJIA opened unchanged, the 10 yr note +2/32 and mortgage prices +.03 to .06 basis points in price. FLAT!

At 10:00 this morning the only economic news; Sept wholesale inventories jumped 1.5% against estimates of +0.6%; sales up 0.4%. The inventory to sales ratio at 1.18 months compared to 1.17 months in August. August inventories were revised to +1.2% from +0.8% originally reported. No reaction to the report but sales are lagging, building inventories seen as confidence in the recovery but with no job improvement buyers remain tepid.

Yesterday's 3 yr note went off well; at 1:00 today Treasury will auction $24B of 10 yr notes. The auction today and tomorrow's 30 yr auction may move the markets this afternoon pending the demand. Last month when Treasury auctioned a 30 yr bond not many actually showed up, sending the 30 yr yield rocketing higher. Markets have been treated to very strong demand for US treasuries for about two years, the soft demand for the 30 last month may signal demand is lessening. Today's 10 yr is therefore more sensitive than has been the case. A weak bid will send prices lower and rates up. Keep focused at 1:00 to 1:30 this afternoon.

From a technical view both treasuries and mortgages are not moving much. The momentum oscillators we track are neutral, the range of trading in the last two weeks have been tied in a tight range. Today we won't see much improvement until the results of the 10 yr auction are released at 1:00 pm, then only improve if the demand is strong.

Monday, November 8, 2010

Market Snapshot by Sigma Research

Monday, November 08, 2010
Interest rate markets are flat this morning with no driving news and ahead of this afternoon's $32B 3 yr note auction. No economic data today, a few Fed speakers but not expected to rock the boat. Treasury is conducting its quarterly refunding this week, auctioning a total of $72B of treasuries; today the 3 yr note, tomorrow $24B of 10 yr notes and o Wednesday $16B of 30 yr bonds.

Not much in the data world this week; on Thursday the bond and mortgage markets will be closed for Veteran's Day while equity and futures markets will stay open. At 9:30 the DJIA opened down 43, the 10 yr note at 9:30 +2/32 with its rate at 2.53%, mortgage prices that traded unchanged until 9:30 were up 2/32 (.06 bp).

Still a lot of hand-wringing around the world over the Fed's decision to buy $600B of treasuries. Most central bankers worry over the potential of currency wars with countries trying to drive their currencies lower to capture export business. Unlikely that will occur but with the Fed out at the edge with its QE uncertainty is the dominating concern now. Over the weekend Bernanke commented the Fed isn't aiming at an increase in inflation, really? What Bernanke meant to imply (we suppose) is that the Fed isn't trying to set off an inflationary spiral but in an attempt to drive off deflation fears, the Fed does want the level of inflation to increase to its general target of 2.0% to 2.5% frm 1.0% presently. “I have rejected any notion that we are going to raise inflation to a super-normal level in order to have effects on the economy,” Bernanke said in a panel discussion at a Fed conference in Jekyll Island, Georgia. “It’s critical for us to maintain inflation at an appropriate level.” Friday G-20 meets with leaders of their countries; looks like the US will have a lot to convince other G-20 countries that we are on the correct path.

Since the FOMC meeting on 9/21 when the Fed said it was prepared to add additional stimulus with another QE the bellwether 10 yr note and mortgage rates have rallied, then retreated to leave those rates slightly lower but so far there has not been the move many were expecting. Many analysts and economists were forecasting the 10 yr note would fall to 2.25% frm 2.50% area now. We thought then, and now, that rates would not likely fall much on the easing. If, as the Fed believes, interest rates at the short and belly of the curve stay generally low it will add growth in the economy and likely edge inflation up a tad; hard to paint the picture of much lower long term rates under those circumstances.

This Week's Economic Calendar:
1:00 pm $32B 3 yr note auction
10:00 am Sept wholesale inventories (+0.6%)
1:00 pm $24B 10 yr note auction
7:00 am MBA mortgage applications (N/A)
8:30 am weekly jobless claims (-7K to 450K)
Sept trade deficit (-$45.0B)
Oct import and export prices (N/A)
1:00 pm $16B 30 yr bond auction
2:00 pm Oct Treasury budget (-$140B)
Veteran's Day bond and mtg markets closed; stocks trade
9:55 am U. of Michigan mid-month consumer sentiment index (69.0 frm 67.7)

We expect a generally quiet day in the rate markets with little changes by the end of the day.

Thursday, November 4, 2010

Market Snapshot by Sigma Research by SC Mortgage Assoc

Thursday, November 04, 2010
Markets opened substantially better this morning after a very volatile trade yesterday afternoon on the FOMC statement and the details on what the Fed will do on the QE. $600B of additional treasury purchases and $250B to $300B more from the pay down of principle from the $1.25T of MBSs bought over the past 18 months (ended last March) over the next six to eight months. The long end of the yield curve crumbled, the 30 yr bond yield increased 12 basis points in rate to 4.06%, the 10 yr yield by the end of the session was down 1 basis point in rate to 2.58%, the 5 yr note yield declined 5 basis points to 1.11%. Mortgages took an initial hit but rebounded by the end of the session to close better in price by .15 bp), but still slightly weaker than at 9:30 yesterday.

The DJIA opened at 9:30 +80 points, the 1`0 yr note +21/32 at 2.50% and mortgage prices +17/32 (.53 bp).

The Fed's easing is steepening the yield curve, rates lower at the short end and higher at the long end of the curve. This morning the rate markets are improving and settling down somewhat from the initial confusion yesterday on how the easing may impact interest rates. At 9:30 the 10- yr note price up 23/32, its yield 2.50% -8 basis points, mortgage prices at 9:30 +18/32 (.56 bp) on 30s. +18/32 (.56 bp) on 30 yr FHAs and +12/32 (.37 bp) on 15s.

The Fed will likely buy treasuries at the belly of the curve, 5 yr and 7 yr notes. The plan apparently, drive down short term rates to motivate borrowing by businesses that hopefully then will start hiring.

At 8:30 this morning weekly jobless claims were higher than forecasts, up 20K back over 450K to 457K, continuing claims did decline to 4.34 mil from 4.382 mil last week. The 4 wk average for claims at 456K. The increase in claims provided a boost for the rate markets. Also at 8:30 Q3 productivity expected up 0.9% was up 1.9% after falling 1.8% in Q2. Unit labor costs down 0.1% after increasing 1.3% in Q2.

The opinions about the Fed's easing are all over the map. There are many that believe the easing is a mistake and won't help much to increase the speed of the recovery; while many others fear that the Fed may be successful in increasing the inflation rate as the Fed has said it wants for many months now. While the Fed won't make a point of it, they want the dollar to weaken, and that is happening. A weaker dollar is inflationary, not what investors want at the long end of the curve----the 30 yr bond got ripped apart yesterday and is weaker again this morning. The Fed's plan is to drive investors out of the safe treasury market and into equities and higher yielding bonds such as MBSs and high grade corporates. Attempting to force investors away from safety and into other investments that provide better returns is supposed to change the economic outlook to more optimistic.

Expect markets to remain edgy through today and into the employment report tomorrow. So far so good after the volatility yesterday, the 10 yr and mortgages are improving; however traders remain unsure about what the actual impact will be for mortgage rates and the key 10 yr note.

Wednesday, November 3, 2010

Market Snapshot by Sigma Research by SC Mortgage Assoc

Wednesday, November 03, 2010
Today is the day the world awaited (since 9/21); at 2:15 the FOMC statement will come and finally markets will know for sure what the Fed is about to do on the QE 2 easing move. Going in to it, there is widespread belief that the treasury buying will total $500B and accomplished over a six month period. The Fed is always concerned not to shock financial markets so it is unlikely that whatever their plan it won't rattle markets with something well off target.

The election results are about what was expected; the House to Republicans, the Senate stays with the Democrats. No noticeable market reaction to the results as they were widely expected. Treasuries and mortgages opened better this morning; at 8:15 the Oct ADP non-farm private jobs report hit, expectations were for an increase of 23K jobs as reported ADP said private jobs increased 43K. In Sept ADP reported private jobs were down 39K, today it was revised to -2K. Better than expected but still no real new hiring; there was no reaction to the report in either the stock or bond markets.

At 9:30 the DJIA opened +10, the 10 yr note +12/32 at 2.55% -4 bp and mortgage prices much better; +12/32 (.37 bp) on 30s and +7/32 (.22 bp) on 15s.

At 10:00 Sept factory orders were expected up 1.7%; orders increased 2.1% and Aug orders were revised to unch frm -0.5% originally reported.

Also at 10:00 the Oct ISM services sector index, expected at 53.5 frm 53.2 in Sept, was better at 54.3. The new orders components increased to 56.7 frm 54.9, employment component at 50.9 frm 50.2 in Sept and price index at 68.3 frm 61.1. There was no initial reaction to the data; although stronger with the FOMC statement later today markets are storing the data but not reacting yet.

Waiting now for the FOMC policy statement this afternoon. How the Fed will do the so-called easing, how much, when and comments about the economic outlook should be included in the normally short statement that concludes the meeting. It is uncertain how traders will take the easing move, how the dollar trade will occur, and what the market expectations will be on any direct benefits of an easing move. As noted previously, the Fed appears determined to increase the inflation rate by weakening the dollar with the QE. Fixed income investments in US treasuries at the current low levels may be a hard sell to investors if markets believe the Fed will be successful in bringing up the inflation rate back to their perceived target range of 2.0% to 2.5%. A quantative easing will bring interest rates down as long as economic data points are weak, however recent data has been fractionally better than estimates on some of the key data. The markets may not react much on the FOMC statement with Oct employment scheduled Friday. Present estimates after the ADP report this morning are being revised better than prior to the ADP, from estimates of 60K non-farm private job gains to 80K to 100K, still very weak but may bother traders with inflation concerns resting right under the surface. No rally in the bond market and mortgage market if inflation fears increase.

The MBA today released its Weekly Mortgage Applications Survey for the week ending October 29, 2010 at 7:00 am. The Market Composite Index, a measure of mortgage loan application volume, decreased 5.0%. The Refinance Index decreased 6.4% from the previous week. This is the third straight week the Refinance Index has decreased. The seasonally adjusted Purchase Index increased 1.4% from one week earlier. The four week moving average for the seasonally adjusted Market Index is up 0.1%. The four week moving average is down 2.7% for the seasonally adjusted Purchase Index, while this average is up 0.8% for the Refinance Index. The refinance share of mortgage activity decreased to 81.3% of total applications from 82.3% the previous week. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.28% from 4.25%, with points increasing to 1.07 from 1.00 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages decreased to 3.64% from 3.67%, with points increasing to 1.08 from 0.96 (including the origination fee) for 80% loans.

Treasury announced the details for next week's quarterly refunding; $32B of 3 yr notes on Monday, $24B of 10 yr notes on Tuesday, and $16B of 30 yr bonds on Wednesday.

Not looking for much movement now until 2:15 with the FOMC policy statement release.

Tuesday, November 2, 2010

Market Snapshot by Sigma Research by SC Mortgage Assoc

Tuesday, November 02, 2010
Nothing on the calendar today, no economic releases and the FOMC meeting starts. Election day, later this evening markets will have one issue resolved; whether Republicans gain the Senate or not. The House is being conceded to Republicans, voters upset over the debt, the lack of job growth, health care, and financial regs that have not saved consumers a dime. Actually the regs passed by Sen. Dodd and Barney Frank have increased the cost of acquiring a mortgage by $400.00 just to mention one of the negative impacts coming from the financial reform regs.

All attention now is on the Fed and how we get more stimulus, and most importantly will interest rates decline? Based on the way rate markets are trading over the past two weeks the present view is interest rates won't fall much if at all. The majority are expecting a $500B purchase of US treasuries over a six month timeframe and yet interest rates are increasing. The missing element in the debate is that recent economic data has overall been slightly better than economists' forecasts. With the Fed printing money for the easing move and possibly better economic outlook it is a formula for potential inflation, it is what the Fed is aiming for with the easing. From the markets perspective, if the economic outlook improves while the Fed is adding more to its balance sheet with the easing move that is expected, it is not likely interest rates will decline much.

Although a slightly more improved economic outlook; it is a very tenuous belief. Unemployment is high and even the most bullish concede jobs won't improve through next year with the unemployment rate remaining over 9.0% for most of the year. The housing sector is not rebounding, even with historic low rates as long as valuations continue to decline there is no motivation to rush to purchase; consumers still deleveraging. The Fed wants inflation levels to increase to the 2.0%/2.5% level from 1.0% presently; the Fed won't be unhappy if the dollar continues to decline as a response to more money printing. The Fed isn't as concerned about the level of interest rates as much as bumping up inflation, and inflation increases are anathema to the long end of the yield curve and mortgage rates.

The mortgage markets are opening better this morning after strong selling yesterday. Treasuries a little better and the stock market opened higher. Should be generally quiet today with no data points, the election and tomorrow's announcement from the Fed on the QE move. Yesterday we were expecting a flat day but the rate markets were anything but flat, rates increased; especially mortgage rates that face the hurdle of all the foreclosure problems that are keeping MBS investors away.

Market Snapshot by Sigma Research by SC Mortgage Assoc

Monday, November 01, 2010
Treasuries and mortgage markets opened better this morning and the equity markets also better. Nothing significant, elections tomorrow not a huge market deal but on Wednesday the event of the week when the FOMC announces its QE details. So far after all the hoopla six weeks ago when the Fed said it was prepared to ease the bond and mortgage markets are right about where they were trading when the 9/21 FOMC policy statement was released. A big rally in the rate markets, then a big sell-off took interest rate rates at the long end of the yield curve gave the markets a ride with no changes.

At 8:30 this morning Sept personal income and spending; income declined 0.1% against expectations of +0.2, spending increased 0.2% against estimates of increasing 0.4%. The weak income and spending didn't move markets although from the perspective of recovery the data was not good.

At 10:00 Sept construction spending was expected to have declined 0.7%, spending increased 0.5%.

The data point of the day; at 10:00 the Oct ISM manufacturing index, expected at 54.0 frm 54.4 reported in Sept, was stronger at 56.9; new orders at 58.9 frm 51.1, employment at 57.7 frm 56.5 and prices pd at 70.5 frm 71.0. The report stronger in every category, any index over 50 is considered expansion. The initial reaction took treasury prices down from their best levels, mortgage prices also came off levels at 9:30; +2/32 frm +4/32. The stock market exploded with the DJIA up 124 points at 10:05 am. The report will weigh on the rate markets but we don't look for any substantial price declines.

This Week's Economic Calendar:
Tuesday; (no data)
7:00 am MBA weekly mortgage applications
8:15 am Oct ADP private jobs (+23K)
10:00 am ISM services sector index (53.4 frm 53.2 in Sept)
Sept factory orders (+1.7%)
2:00 pm Oct auto and truck sales (autos 3.8 mil, trucks 5.1 mil)
2:15 pm FOMC policy statement
8:30 am weekly jobless claims (+11K back to 445K)
Q3 advance Q3 productivity (+0.9%, Q2 -1.8%)
Q3 unit labor costs (+1.0%)
8:30 am Oct employment report (non-farm private jobs +60K; overall non-farm jobs +60K; unemployment rate unchanged at 9.6%)

Markets still uncertain about what the Fed intends with the easing move on Wednesday. The Fed is going to begin buying treasuries, that is baked in the cake. How much and when is question one; question two is how the bond and mortgage markets will take it? Will more easing increase concerns that inflation will increase, the fixed income markets are fearful easing may actually improve economic recovery and ignite a move higher in the inflation rate. The Fed has made it very clear it wants the level of inflation to increase to quell deflation and possibly motivate consumers; fixed income investors worry over inflation increases. The tug of war since the 9/21 FOMC meeting, sending rates lower, then driving rates back higher to levels when the QE statement was released implies no certainty either way.

We expect the bond and mortgage markets will improve on the initial reaction to Wednesday's easing announcement but we are not yet in the camp that is expecting the bellwether 10 yr, driver for mortgage rates, to fall to 2.25% as some believe. Overall we still question that another QE is necessary and have concerns it won't help revive the economy. Lower rates, if we get them, are not likely to stimulate the depressed housing sector, consumer spending or job growth; the Fed may be pushing on the string. Talk of a weakening dollar resulting from the Fed money printing being the catalyst for an increase in exports is too optimistic, may help but not enough to increase economic growth much.