Wednesday, January 26, 2011

Market Snapshot by Sigma Research - Wednesdays Report

Wednesday, January 26, 2011
Like clock work! Yesterday the 10 yr note rallied taking the yield to 3.31% intraday and closing at 3.33%, the yield fell to its key resistance area (again); this morning the 10 yr yield at 9:00 back up to 3.37%. You can almost guarantee any rally taking the 10 yr note back to 3.00%-3.28% will fail the following day; equally it is almost 100% sure that when the rate climbs to the 3.45%-3.50% it will also fail to climb higher. Mortgage rates follow; yesterday mortgage prices increased 10/32 (.31 bp) this morning at 9:00 -10/32 (.31 bp)----running on a tread mill.

Last night the President had an opportunity to take a huge step toward setting the agenda this year on cutting federal spending. He could have laid out his ideas and strategy to address the exploding budget deficit that if left unchanged will eventually send interest rates a lot higher and drag the economy down. He didn't; he spoke eloquently as always but most of his speech was shallow on specifics, lots of platitudes and lots of feel good comments but he left with no details. Pres Obama is caught in the cross hairs of his political party; liberal Democrats do not want smaller government and less spending, they want more; the President knows he has to move more to the center. He knows the federal deficit has to be reigned in, he realizes he has to work with Republicans toward that end. His speech last night seemed designed to not alienate the far Left in his party while also trying to appear conservative and tough on spending. He failed to take up the challenge.

The MBA released its Weekly Mortgage Applications Survey for the week ending January 21, 2011. The Market Composite Index, a measure of mortgage loan application volume, decreased 12.9% on a seasonally adjusted basis from one week earlier. The Refinance Index decreased 15.3% from the previous week and reached its lowest level since January 2010. The seasonally adjusted Purchase Index decreased 8.7% from one week earlier. The Purchase Index is at its lowest level since October 2010. The unadjusted Purchase Index decreased 3.1 percent compared with the previous week and was 20.8% lower than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is down 1.0%. The four week moving average is down 3.7% for the seasonally adjusted Purchase Index, while this average is down 0.1% for the Refinance Index. The refinance share of mortgage activity decreased to 70.3% of total applications from 73.0% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 5.2% from 5.0% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.8% from 4.77%, with points decreasing to 1.19 from 1.20 (including the origination fee) for 80% loans. This week the increase in the rate followed three consecutive weekly decreases. The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.12% from 4.16%, with points increasing to 1.26 from 0.90 (including the origination fee) for 80% loans.

At 10:00, a few minutes ago, Dec new home sales expected up 3.4%, increased 17.5%, just like last week's existing home sales spiked 12.3%. The headline looks good, the guts were less so. In the west sales increased 71.9%?, 2010 sales declined 14.4%, and it still leaves a 6.9 month supply. In Dec rates increased and may have contributed to better sales as buyers made their moves before rates moved even higher. The initial reaction to the report added more selling in the treasury markets, mortgage prices slipped a little so far but not as much as the 10 yr note fell on the report.

At 1:00 Treasury auction $35B of 5 yr notes, the second of three auctions this week raising $99B. Yesterday the 2 yr auction was not met with very strong demand.

At 2:15 the FOMC meeting will conclude with the short policy statement. The Fed will not increase interest rates, will sound supportive on the economy, say it wants inflation levels a little higher. Essentially about the same as the statement after the Dec 15th meeting.

Market Snapshot by Sigma Research - Tuesdays Report

Tuesday, January 25, 2011
Treasuries and mortgage markets opened better this morning on lower US stock indexes following very weak British Q4 GDP report this morning. Britain’s gross domestic product sank 0.5% in the three months through December after increasing 0.7% in the previous quarter. Economists had predicted 0.5% growth in the U.K.’s GDP. By 9:45 however all the early gains in mortgage markets were gone and the bellwether 10 yr after being up 12/32 early was +5/32.

The Nov S&P/Case-Shiller index of home values in 20 U.S. cities fell 1.6% from November 2009, the biggest 12-month decrease since December 2009. Home values fell 0.4% for the 10 largest markets.

Treasury starts the week's borrowing this afternoon with $35B of 2 yr notes; should see good demand but recent auctions have been spotty with some issues seeing strong bidding while others don't do so well. Two weeks ago Treasury auctioned a 3 yr note that was not well bid. Tomorrow $35B of 5 yr notes and Thursday $29B of 7 yr notes.

The Fed begins two days of the FOMC meeting today, nothing today but at 2:15 tomorrow the policy statement will be released to fanfare and potential trepidation. The Fed is highly unlikely to alter its $600B purchases of treasuries even though business lending is increasing and the economic outlook appears stronger. Recent Treasury auctions amount to a little over $200B a month, the Fed is buying about half that amount in seasoned notes lessening the supply a little and adding some support for longer term rates.

The Johnson Redbook chain store sales increased 2.3% for the week ended 1/22 versus the same week a year ago. Yr/yr chain store sales increased 2.5% (Jan 2011/Jan 2010). Month to month sales however declined 0.7% in Jan compared to last month (Dec).

The Jan Conference Board's consumer confidence index, expected at 54.4 frm 53 (revised frm 52.5).5 in Dec, increased to 60.6. The expectations index also climbed, to 80.3 frm 72.3. The huge increase in confidence is the highest reading since last May. The reaction took mortgage prices lower and the 10 yr back to unchanged from +4/32 prior to the report. Also at 10:00 the FHFA housing price index was unchanged from Oct which was up 0.7%.

Gold and crude oil continue their fall this morning; gold is off about $80.00 frm its recent highs over the past couple of weeks, now at a two month low. Crude oil, widely expected to increase to $100.00 this spring, hit $91.00 levels recently but has been sliding recently, this morning early crude was off another $1.00 at $87.00 (see below for 10:00 levels for gold and crude).

The DJIA opened -21, the 10 yr note at 9:30 +8/32 3.37% -4 bp and mortgage prices +3/32 (.09 bp). The infamous 10 yr note still confined to its six week cage between 3.50% and 3.25%, nothing seems to shake it, a traders delight; no directional trend. Traders moving the note in its range and doing quite well with not much risk; buy 10 yr note futures when the yield hits above 4.45%, sell at 3.28%.

The 10:00 data (consumer confidence) took everything out of the early gains; lenders that priced prior to 9:30 this morning may already be setting up for re-pricing lower. At 9:30 mortgage prices were +3/32 (.09 bp) and 10:05 -5/32 (.15 bp) a drop of 8/32 (.25 bp).

Market Snapshot by Sigma Research - Mondays Report

Monday, January 24, 2011
The bond and mortgage markets started rather quietly this morning, stock indexes slightly better early but mostly unchanged. There are no economic data points to think about today. This week markets will contend with Treasury auctions and the FOMC meeting on Wednesday. Economic reports include two measures of consumer attitudes, new home sales for Dec and Q4 GDP advance look.

Treasuries and mortgage markets continue to trade in their narrow ranges that is now going on five weeks with interest rates contained in a 25 bp range for the 10 yr note and 15 bp for 30 yr mortgages. Investors still holding bonds, not yet willing to believe completely that the economy will improve as much as most now believe and not being influenced by all the talk about inflation. How much longer interest rates can stay at these low levels depends on economic reports for Jan, most we won't see until Feb when the key points are reported. While recent trading has been well defined, the outlook is for rates to move up as the year moves on.

This week the FOMC meeting with its short policy statement in Wednesday afternoon, The State of the Union address on Tuesday eve, and Treasury auctions are the critical elements. On Friday the first report on Q4 GDP is expected to show growth increase of 3.7%, up frm +2.6% in Q3.

At 9:30 the DJIA opened unchanged, NASDAQ +5 and S&P 500 unch; mortgage prices +1/32 (.03 bp) and the 10 yr note +2/32 at 3.40% -1 bp.

This Week's Economic Calendar:
9:00 am Case/Shiller home price index for Nov (-1.5%)
10:00 am Conference Board's consumer confidence index (54.2 frm 52.5)
FHFA Nov housing price index (N/A)
1:00 pm $35B 2 yr note auction
7:00 am weekly MBA mortgage applications
10:00 am Dec new home sales (+3.4% to 300K annualized)
1:00 pm $35B 5 yr note auction
2:15 FOMC policy statement (no change in interest rates)
8:30 am weekly jobless claims (+6K to 410K, con't claims 3.835 mil frm 3.861 mil)
Dec durable goods orders (+1.5%, ex transportation orders +0.6%)
10:00 am Nov pending home sales (-0.5%)
1:00 pm $29B 7 yr note auction
8:30 am Q4 advance GDP (+3.5%)
Q4 employment cost index (+0.4%)
9:55 am U. of Michigan consumer sentiment index (73.2 frm 72.7)

President Barack Obama said in a video to supporters that tomorrow’s State of the Union address will focus on cutting the deficit, reducing unemployment and ensuring the U.S. can compete with economic rivals. “My principal focus, my number one focus, is going be making sure that we are competitive, that we are growing, and we are creating jobs not just now but well into the future,” Obama said in a video released over the weekend.
Inflation worries appear to be lessening; Goldman/Sachs successfully sold 20 yr bonds on Friday with good demand. Economists are lowering forecasts for consumer price rises next year, with the median estimate declining to 1.9% this month from 2% in December, according to a Bloomberg survey. The record $13B auction of 10-year Treasury Inflation-Protected Securities last Thursday attracted lower-than- average demand and the difference between yields on 10-year notes and TIPS narrowed the most since May. Businesses are not likely to have much pricing power, consumers will likely not spend as much on discretionary purchases with food and energy prices expected to continue increasing, keeping price pressures low and business earnings subdued.

This year we will experience 4 unusual dates 1/1/11, 1/11/11, 11/1/11, and 11/11/11. Now figure this out; Take the last 2 digits of the year you were born plus the age you Will be this year, and IT WILL EQUAL 111. Very Strange...

Market Snapshot by Sigma Research - Weekly Preview

Where SC shops for mortgages!
Monday, January 24, 2011
This Week; Treasury will auction $99B of notes beginning Tuesday with $35B of 2 yrs, $35B of 5 yr notes on Wednesday and $29B of 7 yr notes Thursday. Economic releases include Jan consumer confidence index, Dec new home sales, Dec durable goods orders and the first look at Q4 GDP. Outside of the data the key this week is the FOMC meeting and the statement released Wednesday afternoon. The Fed is increasingly more optimistic about the economic recovery, expect even more improvement in the short statement and that the Fed will continue to keep interest rates low. There is little doubt that the Fed will complete its $600B purchases of treasuries by the end of Q2. Tuesday evening the President will deliver his State of the Union address, looking to move more center and establishing a more co-operative stance with Republicans. The bond and mortgage markets remain well tethered in their respective narrow ranges with the longer outlook for rates remaining bearish.

Market Snapshot by Sigma Research - Fridays Report

Friday, January 21, 2011
Treasuries and mortgages opened a little better this morning after rates increased yesterday on strong economic data in housing, weekly jobless claims and the Philly Fed business data. The benchmark 10 yr note yield increased to 3.45% close to 3.50% level that has supported long term rates for 25 trading sessions, mortgage prices fell and their rate increased but also still in their trading range.

There is nothing on the schedule today, no data and no Fed speakers now until after the FOMC meeting next Wednesday. The bond market will likely take direction from how equity markets perform today. In early pre-market trade the key stock indexes were pointing to a better open at 9:30. With the indexes improving at 9:15 this morning the rate markets, after opening better were losing momentum. At 8:30 mtgs +.25 bp, at 9:15 -.03 bp; the 10 yr note at 8:30 up 10/32 at 9:13 +3/32 at 3.44% -1 bp.

US stock market is opening better this morning following Europe's markets higher. The euro currency is strong against the dollar this morning on News out of Germany; he Ifo Institute’s business climate index, based on a survey of 7,000 German executives, was 110.3 in January, up from the 109.9 median of 41 forecasts in a Bloomberg News survey. That’s the highest since records for a reunified Germany began in 1991.

I realize we speak of the 10 yr trading range almost everyday, but it is important especially now where the 10 yr is trading this morning and what lies ahead next week. With the 10 yr at 3.45% at 9:30, the stock market strong on the open and next week's Treasury borrowing and the FOMC meeting, the 10 today may make a move to test its high yield at 3.50% that has held the rate increases in check since mid-Dec. Technicians are well aware of the easily noted range, a break above 3.50% would likely add more selling and push the rate up to 3.55% the reactionary high of a few weeks ago that was immediately rejected.

At 9:30 the DJIA opened +50, the 10 yr note -1/32 at 3.46% and mortgage prices -4/32 (.12 bp).

With interest rate markets close to their key support levels this morning today's trading needs close attention. Its early, but so far so good, the 10 is still holding its range as is the mortgage market-----but it is early. Hard to handicap today with nothing in the way of news or data to think about.

Thursday, January 20, 2011

Market Snapshot by Sigma Research - Thursdays Report

Thursday, January 20, 2011
Not a good start in the bond and mortgage markets early this morning; weekly jobless claims at 8:30 were expected to have declined 20K last week, as reported claims fell 37K to 404K filings. Last week claims were revised from 445K to 441K; continuing claims continue to decline, 3.86 mil last week from 3.887 mil the previous week. The 4 week average declined to 411,750 frm 415,750. Unemployment claims are declining furthering the optimistic outlook for this year, still a long way to go but looks like we are on the right track. The reaction drove mortgage prices down .34 bp on mortgages and -16/32 to 3.40% +6 bp on the 10 yr treasury.

Keeping pace; at 9:15 30 yr mtg prices -9/32 (.28 bp) frm the close yesterday. The 10 yr note -13/32 at 3.39% +5 bp. At 9:30 mtgs -11/32 (.34 bp) and -2/32 (.06 bp) frm 9:30 yesterday. The 10 yr at 9:30 -15/32 3.39% +5 bp; the DJIA opened -30.

More data; at 10:00 Dec existing home sales, expected up 4.1% (earlier this week the forecast was an increase of 2.5%), jumped 12.3% to 5.28 mil units annualized, the best sales report in months.

Dec leading economic indicators, expected +0.6%, increased 1.0%.

Finally today and for the remainder of the week, the last data point. The Jan Philadelphia Fed business index was expected at 20.5 was 19.3; new orders component 23.6 frm 10.6, employment component 17.6 frm 4.3 in Dec and prices pd increased to 54.3 frm 47.9.

The four economic reports this morning were all better than forecasts and is fueling more selling in the rate markets after the 10:00 data. The 10 yr note creeping up to 3.41% at 10:07 with mortgage prices -11/32 (.34 bp) about where mortgages traded at 9:30. The stock market didn't rally much on the data, the DJIA made an attempt to get back to unchanged but failed, the DJIA at 10:07 -22.

At 1:00 Treasury will auction $13B of 10 yr inflation indexed notes; normally TIPs auctions don't generate any significant movement in the market.

Every time the interest rate rally to resistance levels buying dries up, the 10 yr note this morning is reeling over the better economic data and momentary fears of inflation increases. There is no way the rate markets will give up inflation fears with rates at these historic lows. The bearish technicals cannot be shaken, although interest rates have been stable for the past few weeks the direction remains up for rates as long as the economic data continues to confirm the optimistic outlook for 2011 growth.

Market Snapshot by Sigma Research - Wednesdays Report

Wednesday, January 19, 2011
Treasuries and mortgages opened better this morning prior to 8:30. At 8:30 Dec housing starts and permits were released; starts were lower than expected, declining 4.3% with estimates of a decline of 1.0%. Building permits were expected up 4.4% but jumped a huge 16.7%. Starts at 529K (annual) and permits 635K (annual). Prior to the data mortgage prices were trading better by .15 bp frm yesterday's close, at 9:00 the price was down .03 bp. The 10 yr note at 9:00 unchanged after being up 8/32 prior to 8:30. Starts at the lowest level since October 2009. By 10:00 support developing; the 10- yr up 6/32 and mortgage prices +4/32 (.12 bp) after being down 2/32 (.06 bp) at 9:30.

Nothing more on the economic calendar today. President Obama meeting with China's leaders today (Pres Hu), nothing that will impact markets however.

The MBA released its Weekly Mortgage Applications Survey for the week ending January 14, 2011. The Market Composite Index, increased 5.0% on a seasonally adjusted basis from one week earlier. The Refinance Index increased 7.7% from the previous week. This is the third consecutive weekly increase in refinance applications and is the highest Refinance Index observed since the beginning of December. The seasonally adjusted Purchase Index decreased 1.9% from one week earlier. The four week moving average for the seasonally adjusted Market Index is up 1.4%. The four week moving average is down 0.8% for the seasonally adjusted Purchase Index, while the average is up 2.3%for the Refinance Index. The refinance share of mortgage activity increased to 73.0% of total applications from 72.1% the previous week. This is the highest refinance share observed since the week ending December 10, 2010. The adjustable-rate mortgage (ARM) share of activity increased to 5.0% from 4.9% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.77% from 4.78%, with points increasing to 1.20 from 0.91 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 4.16% from 4.15%, with points decreasing to 0.90 from 1.01 (including the origination fee) for 80% loans.

So far over the last two years the percentage of adjustable rate mortgages has been low, last week 5.0%; we expect adjustable rate loans as a percentage of overall mortgages will increase this year, possibly tripling to 15% or maybe higher. As interest rates increase through the year it is likely consumers will move more to adjustables. The Fed is going to keep short rates low (Fed funds) while longer term rates increase making it more desirable to turn to adjustables that will carry much lower rates as long as the Fed keeps rates low as the Fed says it will. Even today a 5/1 adjustable is attractive.

At 9:30 the stock market opened a little better after trading weaker in pre-market futures trading after the Dec housing starts declined more than thought and on Goldman/Sachs quarterly earnings report. Mortgage prices off slightly and the 10 yr note sitting unchanged at 3.37% about in the middle of its five week range. The 30 yr FNMA MBS coupon is backing off and has resisted cutting through technical resistance levels.

The interest rate markets presently in a comfort zone; for weeks the bellwether 10 yr and mortgage have found solace in a 20 basis point range for the 10 yr and 12 basis points for mortgages. How much longer the sideway movement will last depends mainly on what the economy does in Jan and Feb, or at least what traders believe it will do. Right now sellers of notes, bonds and mortgages are offset with equivalent buying keeping rates very stable.

Tuesday, January 18, 2011

Market Snapshot by Sigma Research - Tuesdays Report

Tuesday, January 18, 2011
After the three day week-end treasuries opened better this morning, at 8:45 the 10 yr note back testing its five week resistance levels at 3.29% with mortgages off .06 bp from Friday's close. At 8:30 the Fed's NY Empire State manufacturing index, expected at 12.0 was almost right on at 11.92 frm 9.89 in Dec; the new orders component increased to 12.39 frm 2.03, employment index at 8.42 frm -3.41 and prices pd index at 35.79 frm 28.11 (any index over zero is considered expansion, under zero contraction). Overall it didn't garner any interest among traders in rate or equity markets.

The Jan NAHB housing market index at 10:00 was expected unchanged at 16, it came at 16, the third month in a row it has been at 16---a very weak reading.

Once again, right on queue, early trade this morning had the 10 yr note +11/32 at 3.39% and mortgage prices +4/32 (.12 bp). By 9:30 the 10 yr unable to break the wall of resistance at 3.28%-3.25% rate flipped; the 10 yr -10/32 at 3.37% and mortgage prices -14/32 (.44 bp). Any pricing from lenders prior to 9:30 is likely to be re-priced. The DJIA opened +13; the stock market being impacted some early on new Steve Jobs will take a leave due to his health.

A four day work week with not much data, what there is is mainly on the housing sector.
7:00 am weekly MBA mortgage applications
8:30 am Dec housing starts (-1.0%)
Dec building permits (+4.4%)
8:30 weekly jobless claims (-20K to 425K, con't claims 3.90 mil frm 3.879 mil)
10:00 am Dec existing home sales (+2.5%)
Dec leading economic indicators (+0.6%)
Jan Philadelphia Fed business index (20.5 frm 20.8, revised from 24.3 originally released last month)

Are you watching Barney and Chris? Pres Obama has ordered a complete review of all regulations to remove or overhaul those that inhibit economic expansion without helping consumers, advancing his outreach to the business community. Obama wrote in an opinion piece in the Wall Street Journal today that he’s mandating “a government-wide review of the rules already on the books to remove outdated regulations that stifle job creation and make our economy less competitive.” He said the initiative is part of an executive order he will sign today codifying a “balanced” approach to regulation. “This order requires that federal agencies ensure that regulations protect our safety, health, and environment while promoting economic growth,” Obama wrote. “We are seeking more affordable, less intrusive means to achieve the same ends.” Since the big recession ended the last Congress led by Barney Frank and Chris Dodd went wild with new regulations, many added in a mood of panic and ignorance, with little understanding about consequences. The President is moving away from big government, realizing that citizens have had a gut full of Washington, we say hooray. Not a watershed but a step in the right direction.

We call your attention to the charts; the 10 yr yield chart clearly shows that every time the yield falls to 3.29%-3.25% any buying dries up and traders are free to sell. On the MBS FNMA 30 yr chart the technicals are better than the treasury note but won't improve much as long as the 10 yr fails at resistance. The MBS is holding its 20 day average but failing when the price moves to the 40 day average; the two averages are converging, something has to give.

So far this morning the interest rate markets have demonstrated high volatility; the 10 yr yield spiked up 8 basis points in fifteen minutes between 9:10 and 9:20, mortgage prices fell 14/32 (.44 bp) in the same timeframe. Some rebound at 9:35 but still weaker than the opens this morning.

Market Snapshot by Sigma Research - Weekly Preview

Monday, January 17, 2011
This Week: rate markets open in their well-defined trading range unable to press forward or backward. The 10 yr note fails on any rallies at 3.28% area and MBSs are being squeezed by key moving averages, also unable to move higher or lower.

This week the housing sector gets the most play; the NAHB housing index, Dec housing starts and permits, and Dec existing home sales. Two regional Fed reports on the economy, the Philly Fed business index and the NY Fed Empire Sate manufacturing index. Of course on Thursday weekly jobless claims, after jumping 35K last week the early estimates are for a decline of 20K back to 425K filings. Interest rates have been very sable over the past five weeks within a 20 basis point yield range, the market won't hold the range much longer before it breaks out. The direction will be set by economic convictions which up to now have been very optimistic, we continue to be less enthusiastic than the consensus. Recent data points haven't come up to expectations and the equity markets are looking soft. Volatility will remain this week.

Friday, January 14, 2011

Market Snapshot by Sigma Research - Fridays Report

Friday, January 14, 2011
Prior to 8:30 the rate markets were lower in price; the 10 yr -6/32 and mortgage prices -5/32 (.15 bp). At 8:30 two very key data points pushed prices and rates back to unchanged briefly. Dec retail sales were weaker than expected, up 0.6% against +0.7% thought, ex auto sales up 0.5% with forecasts of +0.6%, ex autos and gasoline +0.4%. One of the keys to the optimistic outlook for this year is consumer spending that is expected to increase; the Dec sales while not bad were not as strong as thought and leads to concerns that Jan won't be strong either. We have noted in previous comments that we are withholding our judgment on 2011 until we see how consumers are doing in Jan after the Christmas shopping.

Also at 8:30 Dec consumer price index, expected up 0.4% increased to 0.5%, ex food and energy up 0.1% in line with estimates. The headline CPI was the highest since June 2009. yr/yr CPI +1.5%, ex food and energy +0.8%. Inflation so far remains subdued but markets will still worry over it.

More data at 9:15. Dec industrial production expected +0.5% jumped 0.8%. Capacity utilization in Dec was expected at 75.6%, it increased to 76.0% the highest factory use since Aug 2008. Nov use was revised from 75.2% to 75.4%. Prior to the two reports the 10 yr note was yielding 3.29% and mortgage prices were up .12 bp. Rate markets moved slightly better on the initial reaction, a little surprising given that both were better than estimates. At 9:20 the 10 yr yield at 3.276% and mortgage prices +.15 bp.

At 9:55 the U. of Michigan consumer sentiment index, expected at 75.0 frm 74.5, was lower at 72.7---very disappointing. The current conditions index fell to 79.8 frm 85.3 at the end of Dec; the 12 month outlook however jumped to 87 frm 79. The initial reaction lent support to the bond and mortgage markets.

Finally, at 10:00 Nov business inventories, expected +0.7%, came at +0.2%. Sales were up 1.2% with a 1.25 month supply from 1.27 months in Oct.

The two reports at 9:55 and 10:00 added more buying in treasuries and mortgages sending the 10 yr note to the very critical 3.25%/3.26% level and mortgage prices +25 bp on the day slightly better than at 9:30.

European stocks retreated for a second day, led by a selloff in commodity producers, after China moved to cool its overheating economy. Asian shares and U.S. index futures fell. Inflation in Germany, Europe’s largest economy, accelerated to the fastest pace in more than two years in December, data from the Federal Statistics Office in Wiesbaden showed today. European Central Bank council member Axel Weber said the economic outlook in the euro area has improved markedly and inflation risks “could well move to the upside.” (Bloomberg News)
Crude oil and gold are trading lower this morning on China's moves to cool their economy raising their bank reserves; the declines helping the interest rate markets.
Markets today will have to consider that US markets will be closed on Monday (MLK). Generally major moves are unlikely with a holiday that closes our markets.
The bellwether 10 yr note is now traded at its key five week resistance level at 3.26%, the lowest rate we have had since 12/20 when the note fell to 3.25% but closed at 3.35%. T As we have said, a close below 3.25% for the note will likely set up a nice improvement in mortgage rates. There is still a lot of trading left today, as noted in the hold/lock advise, today and Tuesday will be critical from a technical perspective.

Thursday, January 13, 2011

Market Snapshot by Sigma Research - Thursdays Report

Thursday, January 13, 2011
Markets got three data points at 8:30 this morning. Weekly jobless claims were expected to have declined 4K, claims increased 35K to 445K the largest increase in 6 months and back over the pivotal 400K level. After three weeks of declining claims reality is back, the holiday shortened week likely caused the recent declines. Continuing claims however are continuing to decline as unemployment insurance runs out; continuing claims fell to 3.879 mil frm 4.127 mil last week. Dec PPI jumped 1.1% against forecasts of an increase of 0.8%; excluding food and energy components up 0.2% in line with estimates. The Nov trade deficit was slightly better than expected at -$38.3B with estimates at -$41.2B. Businesses are benefiting from growing demand abroad and a lower dollar that is making American goods more competitive, propelling a factory-led economic recovery. The gain in exports exceeded an increase in imports that mainly reflected a price-driven surge in purchases of crude oil.

The market reaction to the data didn't move markets; at 9:00 the 10 yr note unchanged and mortgage prices also generally unchanged. Stock indexes in futures markets were lower, the DJIA at 9:00 down 16 points. Overall not much initial reaction to the data this morning. Mortgage prices held slight improvements at 9:15 while the 10 yr treasury note hovered close to unchanged. Mortgage markets from a technical perspective are performing better than the bellwether 10 yr note over the last three sessions, nevertheless still with little directional changes recently.

The ECB met and left its benchmark rate unchanged at 1.0%. ECB's Trichet said inflation pressures in the euro region have picked up, while signaling that policy makers have no immediate plans to raise interest rates. The euro currency is strengthening against the dollar on renewed belief that when Europe's finance ministers meet next week they may increase the size of aid reserves and lower rates on bailout loans. Yesterday Spain sold notes with strong demand, about a 2.1 bid/cover ratio; the rate was higher than in their Nov sale however.

At 1:00 this afternoon Treasury will auction $13B of 30 yr bonds, yesterday's 10 yr note auction was a good one.

The stock market opened at 9:30 with the DJIA off 13 points, the 10 yr note -2/32 and mortgages unchanged (+0.03 bp).

Bernanke is scheduled to speak at 1:00 at the FDIC on small business lending, likely nothing that will move markets.

Estimates for 2011 consumer spending continue to be ratcheted higher; in Dec most economists were saying consumer spending this year would increase 2.6% now the consensus is at +3.0% increase. The optimism for this year is gaining momentum yet we remain unconvinced and as stated previously we want to see consumer spending data for Jan that will not be reported until next month. Food prices will increase substantially this year as will oil prices; how will consumers react to higher base spending costs?

Wednesday, January 12, 2011

Market Snapshot by Sigma Research - Wednesdays Report

Wednesday, January 12, 2011
Starting weaker today, after the 10 yr note once again fell to 3.28% on Monday yesterday selling put the yield back to 3.34%. The 10 is well defined now in a 20+ basis point range, on any rallies in the past month it finds heavy resistance at 3.28%/3.29% level (five times) and moves back up. This morning at 9:00 the 10 yr rate at 3.40%, moving back toward 3.50%. Mortgages this morning, following the 10 yr note, lower in price; down 9/32 (.28 bp). The stock index futures adding pressure in rate markets with key indexes early pointing to a strong opening at 9:30. At 9:30 the DJIA opened +60 points.

This afternoon's $21B 10 yr note auction and the stronger stock market this morning will likely keep the note and mortgages in check until the results of the auction are reported at 1:00. A good auction should support the note, a weak one will add more selling but will still keep the note and mortgages in their respective trading ranges.

Dec import prices were +1.1% about in line with estimates, non petroleum import prices up 0.4%; yr/yr import prices increased 4.8%, non petro +2.7%. Export prices were up 0.7% right on forecasts; yr/yr +6.5%, a record increase. No reaction to the data, it rarely gets much.

The weekly MBA mortgage applications index up 2.2% last week; the purchase index did decline 3.7% but re-fi index was up 4.9%. The average rate on a 30-year fixed loan dropped to 4.78% last week from 4.82% the prior week. The rate reached 4.21% in October, the lowest since the group’s records began in 1990. At the current 30-year rate, monthly payments for each $100,000 of a loan would be $523.46, or about $21 less than the same week the prior year, when the rate was 5.13%. The average rate on a 15-year fixed mortgage declined to 4.15%, from 4.23%. The rates include a 1.00% origination fee for 80% loans. The share of applicants seeking to refinance a loan rose to 72.1% last week from 71% the prior week.

The Fed's Beige Book will be released at 2:00; markets like it because of its detail but in terms of overall assessments on the economy nothing new is expected.

Later this afternoon at 2:00 Treasury will report the Dec budget balance, normally Dec has a surplus with end of yr tax payments. This Dec the budget is expected at a deficit of $80.0B. No market reaction is expected.

Tuesday, January 11, 2011

Market Snapshot by Sigma Research - Tuesdays Report

Tuesday, January 11, 2011
The rate markets started quiet and about unchanged this morning after a nice move technically yesterday for the bellwether 10 yr note. The note yield closed under its 20 day moving average and the 9 day RSI moved below 50 to 48, the first time the RSI index is below 50 (bullish) since mid-Nov, good but not good enough yet. For over a month on any improvement in its yield the 10 yr note has run into a wall at 3.28%, that occurred yesterday and this morning the 10 yr at 9:30 at 3.31%. Mortgage prices unchanged at 9:00 this morning. No direct news for the markets overnight; Japan announced it would join China in buying debt issues in Europe to assist in the sovereign debt problems that continue to plague the region.

Japan will buy bonds issued by Europe’s financial-aid funds, Finance Minister Yoshihiko Noda said in Tokyo today, joining China in signaling support for the region as Portugal, Spain and Italy prepare to sell debt this week. China’s foreign- exchange reserves jumped by a record last quarter to $2.85 trillion, the central bank said today. The announcement improved Europe's stock markets and supported US stock index futures in pre-market trading.

Somewhat of a negative this morning for the economic outlook; the National Federation of Independent Business index of sentiment of small businesses fell for the first time in six months, down 0.6%. For six months the index had been very slowly improving. According to Wm Dunkelberg, chief economist for the group small businesses are reluctant to spend and hire until they have more evidence consumers will increase spending; the view we have had and continue to have. As we have noted previously, we want to see Jan data before we commit to the current consensus that the US growth in 2011 will meet the 4.0% GDP forecast that has driven equity markets higher. The NFIB monthly report didn't hurt the stock market, the DJIA opened +57 this morning.

The only economic data today, at 10:00 Nov wholesale inventories, expected up 1.0%, were down 0.2%. Oct revised from +0.9% to +1.7%. Nov sales +1.9% with the inventory to sales ratio 1.15 months from +1.17 months in Oct. No initial reaction to the data.

At 1:00 this afternoon Treasury will auction $32B of 3 yr notes; two weeks ago the 2 yr note auction met with soft demand. Likely the bond and mortgage markets will be quiet until the auction results hit.

The Fed will be buying treasuries with matures between 2016 and 2017 today as part of the $600B QE 2, not a big deal though.

Monday, January 10, 2011

Market Trends

Market Trends

Subscribe to this newsletter Hide newsletter Signup
Existing Homes Sales Up, Inventory Down

Demand for existing homes is on the rise, according to a December report published by The National Association of REALTORS (NAR). Existing-home sales rose 5.6 percent in November to a seasonally adjusted rate of 4.68 million units. These transactions, which include single-family, townhomes, condominiums and co-ops, have risen steadily since bottoming in July of 2010.

Lawrence Yun, NAR chief economist, is optimistic about the direction of today's market. "Continuing gains in home sales are encouraging, and the positive impact of steady job creation will more than trump some negative impact from a modest rise in mortgage interest rates, which remain historically favorable," he said.

Total housing inventory fell 4 percent in November to 3.71 million existing homes available for sale, representing a 9.5 month supply at today's current sales pace. NAR President Ron Phipps explains that even with reduced inventory, winter buyers can find good opportunities. "Traditionally there are far fewer buyers competing for properties at this time of the year, so serious buyers have a lot of opportunities during the winter months," he said.

First-time home buyers accounted for 32 percent of existing homes purchased in November, down significantly from the 51 percent share in November 2009 when first-time buyers were anxious to take advantage of the expiring tax credit. Investors were responsible for 19 percent of November transactions, while repeat home buyers accounted for the remaining balance.

Mortgage Rates Inch Upward

As the real estate market continues its recovery, Freddie Mac reported that mortgage interest rates have inched upward from the record low of 4.23 percent in October. The national average commitment rate for a 30-year, fixed-rate, conventional mortgage rose to 4.3 percent in November; the rate was 4.88 percent in November 2009. NAR chief economist Lawrence Yun expects affordable financing will continue in 2011. "In the short term, mortgage interest rates should hover just above recent record lows, while home prices have generally stabilized following declines from 2007 through 2009," Yun said. "Although mortgage interest rates have ticked up in recent weeks, overall conditions remain extremely favorable for buyers who can obtain credit."

Five Winter Staging Tips

When selling your home in the winter, the art of staging the inside becomes more important. Here are five simple tips that can help you sell your home shine even when the outside landscaping has faded:

•Keep your house warm. In the winter people tend to turn the thermostat down to save money, however a warmer house is more welcoming to a potential buyer.
•Clear your walkways and driveways of any snow or ice. Make it easy for buyers to get to your home.
•Clean the windows and blinds. Letting in the natural light can brighten up a room and cheer up the home. This also brings attention to the windows and blinds so make sure they are clean even during winter. Dirty windows will make the home seem as those it's not well maintained.
•Background music played softly can completely change the atmosphere making the home seem cozy and keep potential buyers around longer. Stick with classical music which can appeal to anyone.
•Leave the light on. Before showing a home, make sure it's well lit. A well lit home is more inviting. If you're not home, consider setting up timers.
Following these simple tips can give your house that added boost in today's competitive market. For information on selling in our local market, please feel free to call and ask for a computer analysis of our recent

Market Snapshot by Sigma Research - Mondays Report

Monday, January 10, 2011
Treasuries and mortgages opened a little better this morning with stock index futures trading weaker. There is no data to think about today, most of the key economic reports hit on Thursday and Friday; in the meantime the rate markets will contend with $66B of Treasury auctions beginning Tuesday. Today and tomorrow not much scheduled, in the meantime it is a waiting game and focus on the action in the equity markets that continue to discount the increasing view that the US economy will rebound nicely in 2011.

This Week's Economic Calendar:
10:00 am Nov wholesale inventories (+0.9%)
1:00 pm $32B 3 yr note auction
7:00 am Weekly MBA mortgage applications
8:30 Dec import and export prices
1:00 pm $21B 10 yr note auction
2:00 pm Dec Treasury budget balance (-$80.0B)
Fed's Beige Book
8:30 am weekly jobless claims (+6K to 415K; con't claims 4.09 mil from 4.103 mil)
Dec producer price index (+0.8%, ex food and energy +0.2%)
Nov trade balance (-$41.2B)
1:00 pm $13B 30 yr bond auction
8:30 am Dec consumer price index (+0.4%; ex food and energy +0.1%)
Dec retail sales (+0.7%, ex auto sales +0.6%)
9:15 am Dec industrial production (+0.4%)
Dec capacity utilization (75.5% frm 75.2%)
9:55 am Jan U. of Michigan consumer sentiment index (75.4 frm 74.5)
10:00 am Nov business inventories (+0.8%)

Concerns about potential inflation have not diminished, just pausing for the moment. That traders have turned attention to other issues like the decline in stock markets today, doesn't alter the global concerns that inflation is about to increase. Likely will get a a toe old in emerging markets first, the Europe and the US. The global economic recovery has been stronger and quicker than had been thought, particularly in emerging markets. In Europe the ECB is sounding the warning bell with commodity prices increasing and food prices escalating rapidly. IN the US we look at inflation without consideration of food and energy prices because historically those areas are considered too volatile; that was then, this is now. We believe food and energy costs are going to continue to increase and spill over to all commodities; that has already started and will continue.

The increase in food and energy prices is a two way street for the rate markets; higher food and energy will slow consumer discretionary spending lessening any chance retailers and goods producers will be able to increase prices as consumers slow spending. That however won't hold prices down much longer for other consumer goods, so far producers and retailers have not passed along increases, they simply are cutting back quantities and sizes to offset their price increases. Sooner rather than later those increases will work down the chain to consumers and will send interest rates higher. The caveat, and there always is one, if consumers don't meet current market expectations the economic outlook will weaken and if it does inflation worries will go back in the box and rates will stay historically low.

Technically the 10 yr and mortgages still have slightly bearish tones but slowly that may be changing. If the 10 yr note can clear 3.25% it will likely have a run to 3.00%. The MBS markets are in slightly better technical position but won't launch anything significant until the 10 yr makes its move. The 2011 economic outlook is improving, however skepticism still hangs over markets.

Most every global stock market traded weaker today, Europe still weak. Asian emerging markets took the biggest hits on increasing fears of inflation on exceptionally strong growth. The US equity markets opened weak and getting weaker as the day moves along. Interest rates benefiting on weaker global equities. Crude higher on the closure of the Alaska pipeline due to a leak at a pumping station.

Market Snapshot by Sigma Research - Weekly Preview

Monday, January 10, 2011
This Week: Treasury will auction $66B of notes and bonds. Tuesday $32B of 3 yr, Wednesday $21B of 10 yr notes and Thursday $13B of 30 yr bonds. recent auctions haven't been well bid so markets will be a little touchy especially with the 10 yr and 30 yr auctions. No serious economic releases until Thursday and Friday with Dec retail sales on Friday the headliner. The Fed will release its Beige Book on Wednesday, markets expecting a brighter outlook from the last Beige Book. Technically the 10 yr and mortgages still have slightly bearish tones but slowly that may be changing. If the 10 yr note can clear 3.25% it will likely have a run to 3.00%. The MBS markets are in slightly better technical position but won't launch anything significant until the 10 yr makes its move. The 2011 economic outlook is improving, however skepticism still hangs over markets.

Friday, January 7, 2011

Market Snapshot by Sigma Research - Fridays Report

Friday, January 07, 2011
Dec unemployment rate fell from 9.8% to 9.4%, a huge decline, but an anomaly and should be ignored. Non-farm jobs were less than thought, up 103K overall on unsettled forecasts of +150K. Non-farm private jobs increased 113K against forecasts of +175K. Oct non-farm job growth revised from +170K to +210K, Nov revised from +39K to +71K. For all of 2010, the jobless rate averaged 9.6%, the highest since 1983 and up from 9.3% a year earlier. With today’s report, the Labor Department revised figures from its household survey used in calculating the unemployment rate going back five years.

Manufacturing payrolls rose by 10,000 in December. Economists had projected an increase of 5,000. Employment at service-providers increased 105,000. The number of temporary workers rose 16,000. Construction companies reduced payrolls by 16,000 and retailers added 12,000 workers. Government payrolls decreased by 10,000. State and local governments reduced employment by 20,000, while the federal government added 10,000 jobs.

The Dec report on employment was disappointing, particularly when compared to that blowout ADP report on Wed that said 297K jobs had been added. We noted on Wed that the ADP report included 5 weeks of data compared to the normal four weeks and likely had a lot of temp workers included. Today's BLS report was in line with forecasts prior to the ADP that caused analysts to revise their estimates higher.

The bond and stock markets' initial reaction was subdued and somewhat confusing to traders. The decline in the unemployment rate is a definite anomaly that will not likely last when we get Jan data; if a respondent to the household survey that is used to calculate unemployment says he (she) is not looking for a job that person is not considered unemployed even if they say they are. No one took the decline in the rate of unemployment seriously. Most focus on actual job growth; the revisions are always of more interest and today an additional 70K were added with revisions to Oct and Nov. When the revisions are taken into account with the Dec expectations the three months are generally in line with what totals over the months had been.

The reaction in the bond market isn't much so far; the mortgage markets holding slight gains in prices while the 10 yr rallied initially by 9:15 the note was back to unchanged. The stock indexes initially fell then rebounded to trade about unchanged leading into the 9:30 open (see below for 10:00 levels).

Unemployment continues to drag on the economy, at the rate of recent hiring over the last three months it isn't nearly enough to move the economic recovery up to meet the present lofty 4.0% GDP growth forecasts for 2011. Markets however continued to be supported by the strong holiday shopping even though retails also didn't actually meet expectations, sales were strong but missed the targets. As we have noted, the economy is improving but we are still willing to wait until we see Jan data before we completely get aboard the growth train. Housing still a huge drag, consumer spending was better in Dec but most all of the strong sales came at high end stores like Nordstrom's and Saks; the more main stream stores like GAP, Kohl's, Macy's and Target did not meet analysts' forecasts. The wealthier spent, middle America held back some.

The takeaway form the Dec employment report didn't change anyone's' mind on the economic outlook; the bullish outlook holds while some of us skeptics were not satiated with less job growth. We are not bearish about the economic recovery in 2011, we are however willing to wait for more evidence to get on board. IN the meantime the interest rate markets are equally skeptical, not climbing in yields but not declining either.

Bernanke is testifying at the Capitol, nothing new so far.

At 3:00 this afternoon Nov consumer credit data; markets don't usually react to it but to us it is a very important data point measuring consumers penchant for debt. Estimates are for a slight decline. Credit has collapsed over $376B over the last four months although the data doesn't reflect it because in one of those slight of hand things the Fed changed the game by moving student loans into revolving credit calculations that now distort actual consumer credit based on the headline numbers.

Thursday, January 6, 2011

Market Snapshot by Sigma Research - Thursdays Report

Thursday, January 06, 2011
Yesterday's huge ADP job growth estimate for Dec (+297K jobs) sent a shock through the markets; the consensus was for ADP to report an increase of 100K. Interest rates increased 13 basis points on the 10 yr note and 10 basis points for 30 yr mtgs in reaction to yet another better than expected data point. Add in the better ISM services sector index, the better than expected ISM manufacturing data on Monday, the better than expected Nov factory orders, and the better than expected Nov construction spending, all adding to the increasing view that the US economy is expanding, sent interest rates higher.

This morning the 10 yr note and mortgages opened a little better than yesterday's weak close. At 9:00 the 10 yr traded +8/32 at 3.43% -3 bp and mortgages +5/32 (.15 bp). Still trading in their respective tight ranges with no real overall changes in rates, and continuing the volatile swings that have dominated since the beginning of Dec.

This morning weekly jobless claims were expected to increase 17K to 405K after falling 34K the previous week. Claims as reported increased 18K to 409K, somewhat more but generally in line with forecasts. Continuing claims declined 47K to 4.103 mil; the 4 wk average at 410.75K declined from 414.25K the previous week, the lowest average since July 26th 2008. Although the weekly claims were slightly higher than forecasts, markets were not phased.

The rest of the session should be quiet today ahead of the key Dec employment report tomorrow morning. Prior to the surprising ADP estimate the consensus was for non-farm jobs to increase by 132K and private jobs +142K. After the ADP data analysts have been revising the forecasts closer to 190K to 200K job growth. The unemployment rate in De is still thought to be unchanged at 9.8% to possibly 9.7%. The unemployment rate is calculated by BLS phone surveys asking respondents whether or not they are employed, unemployed, or not looking for a job; if one is unemployed but has given up looking they are not considered unemployed thus not adding to the unemployment rate. The change in non farm jobs is calculated by surveys of employers. Two reports that can at times be seen from different perspectives. The monthly employment report is always the mother of all monthly data points, the report tomorrow takes on even more importance after the ADP yesterday.

Later today Treasury will announce the amounts of next week's 3 yr, 10 yr and 30 yr auctions; the amounts likely the same as last month.

Until about 9:00 this morning the 10 yr was holding an 8/32 price gain and mortgages up 5/32 (.15 bp); by 9:45 however mortgage prices were trading lower on the day, down 2/32 (.06 bp) and likely down as much as 6/32 (.18 bp) frm when most lenders priced. Already the potential of re-pricing if prices fall just a little bit more. It is highly unlikely that we will see any improvement in the rate markets today ahead of the employment data tomorrow morning.

Wednesday, January 5, 2011

Market Snapshot by Sigma Research - Wednesdays Report

Wednesday, January 05, 2011
Prior to 8:15 this morning the interest rate markets were trading better; at 8:15 markets turned and selling pushed rates up and prices lower on treasuries and mortgages. The Dec ADP employment data was widely expected to show an increase of 100K jobs in the month; a blow out number, ADP said new jobs jumped 297K. Treasuries and mortgage prices immediately turned lower, the 10 yr note at 9:00 after being up 9/32 traded -17/32 with its yield up 7 basis point from yesterday's close, mortgage prices at 9:00 -12/32 (.37 bp). The ADP data was strong across the spectrum; small business jobs increased 141K, manufacturing jobs +26K and service sector up 270K. It was the largest increase on ADP data since ADP began reporting 22 months ago. Analysts immediately began revising estimates for the BLS data on Friday; prior to the ADP markets were expecting non-farm jobs on Friday to be up 132K with non-farm private jobs up 142K. Over the 22 months ADP has been reporting jobs only 5 times has the ADP estimate exceeded the BLS data. The only anomaly in the report this morning, it covered 5 weeks instead of the normal 4 weeks and may be over-stated with holiday hirings; nevertheless it was a huge surprise.

The reaction to the huge jobs jump sent interest rates up as you would expect; the 10 yr is still however confined to its 25 basis point range that has kept rates relatively stable for most of the last month. Mortgages getting slammed this morning, at 9:15 testing the first support at 98-31/32 (98.96 bp). The equity markets didn't get any traction on the jobs data, the key indexes opened lower at 9:30. Equity markets were very strong in Dec, likely anticipating better economic growth. After the strong moves in stocks investors are taking a breather but with today's ADP report it won't take long before more buying begins again.

At 10:00 the Dec ISM service sector index, expected at 55.7 frm 55.0, jumped to 57.1 the highest index read since early '06. New orders component increased to 63.0 frm 57.7, prices pd increased to 70.0 from 63.2 and employment index did fall to 50.5 frm 52.7. With interest prices already lower there was no additional selling on the 10:00 report.

The MBA released its Weekly Mortgage Applications Survey for the weeks ending December 24, 2010 and December 31, 2010. For the week ending December 24, 2010, the Market Composite Index decreased 3.9%. For the week ending December 31, 2010, this index increased 2.3%. Both week's results include an adjustment to account for the Christmas and New Year Day holidays. For the week ending December 24, 2010, the Refinance Index decreased 7.2% from the previous week and the seasonally adjusted Purchase Index increased 3.1% from one week earlier. The following week, the Refinance Index increased 3.9% and the seasonally adjusted Purchase Index decreased 0.8%. The refinance share of mortgage activity for the week ending December 31, 2010 was 71.0 percent, an increase from 70.3 percent for the week ending December 24, 2010. For the week ending December 24, 2010, the average contract interest rate for 30-year fixed-rate mortgages increased to 4.93% from 4.84%, with points decreasing to 0.63 from 0.96 (including the origination fee) for 80% loans. For the week ending December 31, 2010, the average contract interest rate for 30-year fixed-rate mortgages decreased to 4.82% with points increasing to 1.11. For the week ending December 24, 2010, the average contract interest rate for 15-year fixed-rate mortgages remained unchanged at 4.22%, with points increasing to 1.34 from 1.19 (including the origination fee) for 80% loans. For the week ending December 31, 2010, the average contract interest rate for 15-year fixed-rate mortgages increased to 4.23% with points decreasing to 1.00.

The ADP report this morning, if supported by the BLS data on Friday, will likely cap any significant improvements in interest rates. The economy is improving, most every economic report has been stronger than economists and analysts' forecasts. The rate markets will have a difficult time overcoming the economic improvement. We suggest homebuyers make their deals at these rates, the outlook for much lower interest rates is dimming daily.

Tuesday, January 4, 2011

Market Snapshot by Sigma Research - Tuesdays Report

Tuesday, January 04, 2011
Treasuries opened flat this morning, mortgages up 4/32 (.12 bp) at 9:00. Still trading in a 25 basis point yield range. The DJIA opening firmer again as most are now believing the economy will continue to improve this year. Technically, the 10 yr note still is unable to close below its 20 day average on the yield chart, but mortgages are performing better, now above its 20 day and possibly going to test the 200 day average.

Smaller U.S. companies are rallying the most since 2003 relative to the Standard & Poor’s 500 Index. That small companies are outpacing larger firms is a bet that the economy will strengthen and spur a third year of gains for investors. The Russell 2000 Index, comprised of stocks with a median market value of $528.5 million, rose 25% in 2010, beating the S&P 500 by 13%. Some analysts believe small companies are doing better because most of their sales are coming from US consumers rather than globally.

The Johnson Redbook retail sales for the week ending 1/1/11 showed yr/yr same-store sales rose 3.5% in the week, below the prior week but right in line with trend and pointing to a very positive 0.4% gain vs November. This latter reading points to a solid gain for the government's December ex-auto ex-gas category in what would be substantial evidence of consumer strength. The sales report is supporting a better open in the equity markets.

The DJIA opened +20 at 9:30, the 10 yr note -3/32 and mortgage prices +4/32 (.12 bp). Support in the interest rate markets may be coming from the view that stocks are currently over-valued even though the indexes continue to increase. We still hold a slight bearish outlook for the rate markets, although the market isn't as negative as it was in early Dec. Nevertheless, as long as the outlook remains positive for the economy it is unlikely that interest rates will decline much if at all.

The only data point today; Nov factory orders, were expected down 0.2%; as reported orders increased 0.7% frm -0.7% in Oct (revised frm -0.9%), ex transportation orders up 2.4%. The inventory to dales ratio at 1.28 months. Yet another data point stronger than expected. There was little immediate reaction to the report although rates have edged higher since 9:30.

At 2:00 this afternoon the FOMC minutes from the Dec meeting will be released. how the members debated the impact of QE 2 and what the Fed expects to do will get attention but not likely to have much impact on the markets.

Later this afternoon Dec auto and truck sales. 9.2 mil total is expected.

Monday, January 3, 2011

Market Snapshot by Sigma Research - Mondays Report

Monday, January 03, 2011

Last Friday in thin trading the bond and mortgage markets had a nice end of the year with good price gains, this morning with the new year under way the bond and mortgage markets started with selling taking most all of Friday's rally back. Now that the holidays are behind us markets are working back to normal with most all investors and traders back on the job. The last two weeks of Dec were marked with high volatility in the rate markets, after all was done the bond market was about unchanged in the period.
The equity markets started strong this morning continuing the increasing view that 2011 will be economically better than 2010. At 8:45 the DJIA index traded +84 with the other two key indexes also strong. Stocks also rose on Europe’s benchmark gauge to its biggest advance in almost two weeks. European manufacturing expanded more than initially estimated in December. China’s purchasing managers’ index fell for the first time in five months, suggesting efforts to ,cool the economy are working. Markets in Australia, Japan, New Zealand, Thailand, China and Vietnam were closed today.
Two economic reports at 10:00 this morning; Nov construction spending expected up 0.2% increased 0.4%. The Dec ISM manufacturing index hit at 57.0 from 56.6, expected at 57.3. The sub components were mixed; new orders increased to 60.9 frm 56.6, prices pd increased to 72.5 frm 69.5 and employment declined to 55.7 frm 57.5. The initial reaction wasn't much but the bond and mortgage markets got a minor boost while the DJIA dipped a couple of points; both markets were little impacted. On the indexes any reading over 50 is considered expansion, under 50 contraction; the higher the index the stronger.
This week's economic calendar: Tuesday; 10:00 am Nov factory orders (-0.2%) 2:00 pm FOMC minutes from Dec 15th meeting 3:00 pm Dec auto and truck sales (3.7 mil autos, 5.3 mil trucks) Wednesday; 7:00 am weekly MBA mortgage applications 8:15 am ADP private jobs report for Dec (+100K) 10:00 am Dec ISM services sector index (55.7 frm 55.0 in Nov) Thursday; 8:30 am weekly jobless claims (+17K to 405K; con't claims 4.07 mil frm 4.128 mil) Friday; 8:30 am Dec employment report (non-farm jobs +132K, private non-farm jobs +142K, unemployment rate 9.8% unchanged) 3:00 pm Nov consumer credit (-$2.5B)
The overwhelming consensus as the year begins is that the equity markets will have strong gains, commodity prices will continue to increase with some talk that crude oil will climb over $100.00, and money will continue to exit fixed income treasuries in favor of stocks. As noted previously we are more skeptical about the economic outlook than the consensus. The economy will do OK but we expect consumers won't meet the lofty expectations on spending with the housing sector remaining soft and unemployment staying high through most of the year. Every year at the start the outlook is optimistic; lets wait and see what consumers do in Jan and Feb. Consumers will more likely save than spend, the demographic changes with 10K baby boomers a day turning 65, a trend that will continue for the next 10+ years and spending by the huge population of boomers won't meet the expectations currently out there.
The Republicans are now in control of the House and have more strength in the Senate. How the two political parties get along and confront health care, the federal debt limit, spending cuts in the next couple of months will set the tone for the next couple of years.
BofA resolved disputes with Freddie Mac and Fannie Mae by agreeing to pay more than $2.6B to settle claims that it sold loans based on faulty information. The fourth-quarter results would include a $2B impairment charge and a $3B provision. The bank faced $12.9B in unresolved put back demands on soured mortgages, with about half related to government-sponsored entities. The stock is rallying this morning in the settlement.

Sunday, January 2, 2011

Market Snapshot by Sigma Research - Weekly Preview

Sunday, January 02, 2011

This Week; its back to work with a full compliment of investors and traders after two weeks of very low trading volume. The year ended on Friday with an unexpected strong rally in the bond and mortgage markets, the 10 yr note yield fell 9 basis points and mortgage prices increased by .69 basis points; we believe it more short-covering than anything substantial, but we will take every improvement the market provides.

This week there is no Treasury borrowing, there is data everyday ending with the Dec employment report on Friday. The FOMC will release the minutes from the Dec 15th FOMC meeting on Tuesday, should get a lot of attention as always. 2010 ended with the increasingly strong belief that 2011 economic growth will increase, sending the equity market to one of the best years in many years. The situation in Washington will change dramatically with Republicans now in control of the House and more strength in the Senate. One of the first things Republicans want to do is work on Obamacare, making what most believe are necessary changes, the issue is what changes will everyone agree are the right ones.

January and February markets will continue to wrestle over the outlook for the economy; it will likely take into Feb to get a handle on consumer spending. Wall Street for the most part is expecting consumers to increase spending, we don't believe that will be the case however. Consumers will more likely save than spend, the demographic changes with 10K baby boomers a day turning 65, a trend that will continue for the next 10+ years and spending by the huge population of boomers won't meet the expectations currently out there. We believe 2011 will disappoint, consumers are more savvy than all those that work east of the Hudson River. Housing is still in dire shape and will continue all through 2011. Inflation fears are probably overdone but still will weigh on the bond and mortgage markets. Monday the 10 yr note yield opens at crucial technical levels, more improvement will change the near term outlook from bearish on rates to one of neutrality. We suggest potential home buyers take advantage of the opportunity if rates improve early this year; it is very unlikely longer term rates will decline much and more likely to increase as the year progresses.