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Bond Market Review and Forecast – for Week Ending 01/08/10
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There was no strong data indicating a reason to believe in an economic recovery in 2010, and mortgage rates ended a little better last week.
Construction Spending for November fell -0.6% worse than expected, continuing to support the notion that any real growth is still a long ways off.
Factory Orders came in at 1.1% increase, double the expectation, and greater than the October reading of 0.6. The durable goods portion was relatively flat, with just a slight decrease from October.
Minutes from last FOMC meeting showed an uneasy feeling of when the purchasing of Mortgage backed securities should end. The purchasing of mortgage backed securities by the Fed has been largely attributed with keeping mortgage interest rates low. The report did maintain that inflation is still tame, and the recovery will be gradual.
Initial Jobless claims showed an increase of 1,000 to 434,000, which was less than expected.
Decembers Unemployment Rate came in at 10%; however, November was revised to show a gain of 4,000. The pace of people no longer counted in the unemployment rate is growing steadily. The continued weakness in employment is giving people hope that the Fed will not increase interest rates soon.
Today is the only day this week without any economic news scheduled for release. The most important data doesn’t report until Thursday.
The U.S. trade balance reports on Tuesday with an expected deficit of $34.8 billion for November from $32.9 billion in October. Don’t expect this number to cause much fan fare.
The Federal Reserve’s Beige book, details economic conditions throughout the U.S by region, will be posted on Wednesday. The Fed puts a lot of weight on the findings during it’s FOMC meetings. Any unexpected news will have a large impact on the financial market and mortgage rates.
There is a Treasury auction scheduled for Wednesday and Thursday. If the auctions are met with strong demand we could see a slight improvement in mortgage rates. I see investors appetite for long-term US securities waning, which will lead to slightly higher rates.
December retail sales will be released on Thursday the expectation is 0.4%, versus the 1.3% gain in November. Strong retail sales growth is important to an economic recovery, thus better than expected numbers will lead to pressure on Treasuries that would probably carry over to mortgage rates. Initial jobless claims for the week of January 09 will be released on Thursday. The estimate is for a 430,000 new claims.
Consumer Price Index (CPI) from December reports on Friday, estimates are for a 0.2% increase versus 0.4% in November. The Core CPI, eliminating food and energy from CPI, is expected to rise 0.1% from 0% in November.
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Bond Market Review and Forecast – for Week Ending 01/01
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Last week was pretty ugly for mortgage rates with positive economic data, and not so strong demand for all of the government’s treasury auctions.
Case-Shiller HPI for October declined 7.3% for the 20 city index, slightly better than estimates. Overall the number was described as flat with only 7 of the 20 cities showing a month-to-month increase. This is about 9 months of improving numbers, the fear is that this may begin a second decrease in the index; with the current consistent Fed policy this is not something to worry about.
Consumer Confidence for December, came in at 52.9, just slightly below the expectations of 53. The economy is considered to be on solid ground with a reading of 90, not contracting or expanding, 100 would indicate economic growth.
Chicago PMI (Purchasing Managers Index) for December, came in at 60, considerably higher than the estimate of 55, and November’s 56.1. Reinforcing the fact that we are starting to see some growth.
Jobless Claims for the week of 12/26 fell to 432,000 much better than the estimate of 460,000, which would have been an increase. This is the lowest weekly number since July 2008. The increasing employment points to an improving economy, and inflation.
Monday we have the ISM Index (Institute for Supply Management), estimates call for 54.0, which would be an increase from November of 53.6. The slight increase called for in the forecast are probably not enough to move the market. The higher the number the worse for mortgage rates, as it shows the manufacturing sector strengthening.
Construction Spending for November, estimates call for a -0.5%, worse the flat reading in October. No real weight will be put into this number until we see some strong growth, even then the number is not considered to have much impact on the market.
Tuesday kicks off with Factory Orders expected to increase by 0.5%, less than Octobers 0.6%. Not much to see here unless we see a large revision to durable goods portion.
Wednesday we will have the release of the minutes from the last FOMC meeting. This will give us a glimpse into the Fed’s thoughts on inflations and monetary policy.
Thursday will bring the initial Jobless claim, estimates call from 445,000. A fear is that the Holiday’s and weather may have skewed the numbers, meaning the number should have been worse than reported. The market has been extremely focused on this number as of late. If the number is lower it will put some pressure on Treasuries, but the traders could wait for Friday’s full report for December.
Friday will bring the release of December’s Unemployment Rate, forecasts call from a rise to 10.1%. If we see a worse number this will move the market, and cause better mortgage rates.
If we get as analysts expect to a net job gain of zero, we would have a strong psychological effect causing the stock market to risk and mortgage market to get worse.
Keep in mind positive economic data generally causes money to flow from Bonds and into Stocks, causing Bonds and home loan rates to worsen, and negative economic data will have the opposite result.
With the economy starting to show signs of expanding, don’t expect mortgage rates to stay low for long. For your personalize rate quote just complete the box to the right.
Bond Market Review and Forecast – for Week Ending 12/25
Posted by: | CommentsThis last week ended up being more of a ride than initially expected. The 10 year treasury closed at a four year high of 3.8%.
The final revision of 3rd quarter GDP was revised down to 2.2% from 2.8% from the 1st revision. This number was actually worse than expected so there was a slight improvement in mortgage rates.
Existing Home sales rose to 7.4% for an annual rate of 6.54 million units. Obviously, a large portion of this increase can be attributed to First Time Homebuyers wanting to take advantage of the tax credit, since it was originally scheduled to end in November.
Personal Income rose 0.4% the best since April, spending rose 0.2%, less than the increase seen in October. The lackluster report helped reassure bond traders that inflation is still a ways off.
University of Michigan’s Final consumer Sentiment fell to 72.5 from 73.4 two weeks earlier, although it did rise during the month, from November’s 67.4. This is 22% above last December. Much of the gain can be attributed to consumer’s opinion of the economy in general as compared to their own finances.
This week brings another shortened holiday week for trading. Trading volume is likely to be extremely low this final week of the year, which could lead to wild swings if any data points to large variances over what was predicted. While the economic data scheduled for release this week is fairly light, there are treasury auctions which can show general demand for bonds.
The first report comes out on Tuesday is Case-Shiller HPI (Home Price Index) for October. This generally has very little effect. It is expected to show home prices declined 7.45%, which is far better than the 9.36% decline reported in September. Keep in mind this index is only for the 20 largest metropolitan areas, so Indianapolis is not included.
Then the Consumer Confidence for December, the estimate calls for 53, last month gave us a reading of 49.5. If the value comes in above 54, look for a slight move in the market. The move in treasuries would be caused by consumers spending more which would help move the economy out of its slump.
Wednesday brings us the Chicago PMI (Purchasing Managers Index) for December. This typically has very little market moving value; however, it is sometimes looked at as preview of what will come from the ISM Manufacturing survey (Institute for Supply Management Manufacturing Survey). With this being the last week of the year, and a shortened trading session, this report could potentially move the market. The estimate calls for a report of 55, with last months coming in at 56.1. Market equilibrium is based off a reading of 50, so anything above 50 shows the market expanding. An item to keep a close watch on is the one two punch of Healthcare Reform (very likely to pass shortly) and Cap and Trade, which could prolong the recession or even deepen it for the next ten years.
The biggest market mover is to be released on Thursday Jobless Claims for the week of 12/26. The estimate calls for new claims to reach 460,000, where it was 452,000 during last release. The bigger item will be release next Friday, aggregating the data for the month of December.
Bond Market Review and Forecast – for Week Ending 12/18
Posted by: | CommentsThis past week was very volatile for Treasuries. The mostly positive economic reports caused bond traders to worry about an early rate hike that spurred selling in bonds. Because of the activity the yield, which moves in the opposite direction of price, on the 10 year treasury hit 3.59%, its highest since mid-August.
The Producer Price Index for November kept the positive economic news going, but increased the fear in traders. It rose by a stronger-than-expected 1.8%. Energy prices accounted for three-quarters of the increase, opening the door for future inflation. And the core, which eliminates food and energy prices, rose 0.5% due to the higher cost of trucks and cigarettes.
Industrial production beat expectations, rising 0.8% – the biggest increase since August. It remains down 5.1% over the past year. But the Empire State index of December manufacturing conditions plunged to 2.55 from 23.51 when 22 was expected.
On Wednesday the consumer price index, which measures retail inflation, calmed inflation anxiety. It rose 0.4% in November and the core was unchanged from October. But once again there were signs that the housing market is recovering. Building permits in November rose to an annual rate of 584,000 from 551,000, while housing starts jumped by 47,000 to an annual rate of 574,000 units.
That afternoon the Federal Reserve once again said that interest rates will be “exceptionally low” for an “extended period of time.” It did note, however, that although economic conditions will remain weak, they are stabilizing, with housing and consumer spending on the rise. It noted that the labor market and businesses continue to struggle. In the end, there was little reaction from the financial markets.
Not so on Thursday. First-time unemployment claims for the week ended Dec.12 rose by 7,000 to 480,000, while the more-accurate four-week average fell for the 15thstraight week. Continued claims, those collecting benefits for more than one week, also rose to 5.186 million.
Two strong reports followed: leading economic indicators, or LEI, and the Philly Fed index of December manufacturing conditions. LEI rose 0.9%, and for the first time since December 2007 employment did not negatively impact the index. The Philly Fed jumped to 20.4, its highest level since April 2005. These reports spurred selling in bonds.
But the rise in initial claims, another credit downgrade for Greece and the Fed’s cautious outlook for economic recovering prompted a big sell-off on Wall Street and the flight to quality was on. The 10-year yield fell below 3.50% for the first time in a week.
The Mortgage Bankers Association reported that applications to refinance rose 0.9% for the week ended Dec. 12, and accounted for 75.2% of all mortgages — the highest percentage since April 24. Purchase apps edged down 0.1%.
This week features another three-day release calendar, but we should just have small movements. And trading should be light with the Christmas holiday. Any signification deviations from predictions will move the market more than normal because of fewer traders working less transactions.
Tuesday’s first report is the final revision of 3rd quarter GDP. This shouldn’t have any impact on mortgage rates unless it varies greatly from analysts expectation of 2.7% — down slightly from last months first revision of 2.8%. GDP prices are expected to show a 0.5% increase, which would be unchanged.
Existing home sales for November are expected to support the theory of a housing market rebound. Sales are predicted to rise to an annual rate of 6.30 million units, up from 6.10 million. This release is to come from the National Association of Realtors. I don’t expect for this report to have much of any impact on mortgage rates, unless the report varies tremendously from the prediction. Weaker numbers would be positive news for the bond market and mortgage rates because it would mean a weaker housing market.
Wednesday’s report on new home sales for November should follow suit. Sales are expected to rise by 10,000 units to an annual rate of 440,000. This report comes from the Commerce Department. I don’t expect this report to move the market much at all, unless the number varies greatly from expectations.
Personal income for November is predicted to rise 0.5% from the previous 0.2% increase. However, personal spending could rise 0.7%, the same as in October. This gives us an important look at the US consumer’s ability to spend and current spending habits. Since the spending of consumers makes up two-thirds of the U.S. economy any data coming from spending/income will have an impact on mortgage rates.
Separately, the University of Michigan’s final consumer sentiment survey for December is expected to climb to 73.9 from 73.4. Two weeks ago the index shocked traders when it rose 6 points, sending Treasury prices tumbling. This is very important to review because rising consumer confidence means consumers may be more apt to make large purchases in the very near future. A revision larger than thought will lead to higher mortgage rates.
Thursday’s initial claims report for the week ended Dec. 19 could sway Treasuries if it shows another big increase in initial claims. Or not.
The final report, durable goods orders for November, is predicted to improve from October. The forecast expects the orders to rise 0.5% versus a 0.6% decline, while orders, excluding transportation, should increase 1.0% — far better than the previous1.3% decline. A decline in orders would be good for the bond market and possibly send mortgage rates lower; however, a number larger than expected could lead to higher mortgage rates.
Bond Market Review and Forecast – for Week Ending 12/11
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There was little economic news early last week, but releases on Thursday and Friday kept selling pressure on and yields, which move in the opposite direction of prices, on the high side.
When the markets closed Thursday, the 10-year yield was at 3.50% — a four-week high. Monday was an up-and-down day on Wall Street, which sent some investors to bonds. And Tuesday, after a wobbly start, bonds gained traction as the equity markets slid. A successful auction and mounting questions about an economic recovery sent yields down.
Wednesday’s report on October wholesale inventories had little impact. They rose 0.3% versus a 0.8% decline in September. Earlier in the day Treasuries benefited from safe-haven buying on a debt rating downgrade for Greece, but the problem was resolved and selling prior to the 10-year auction sent yields back up.
Thursday began with first- time unemployment claims jumping by 17,000 to 474,000. But the four-week average fell for the 14thstraight week, hitting 473,000. Continued claims also dropped to 5.157 million.
The data had no lasting effect on Treasuries, which sold prior to the 30-year auction, and sold more heavily due to soft demand for long-term debt. This followed a poorly bid 10-year note auction on Wednesday, creating concern regarding demand and the budget deficit.
Strong November retail sales in November pushed Treasury yields higher. They rose 1.3%, when a 0.6% gain was predicted. Ex-autos, they were up 1.2%. November sales were up 1.9% from one year ago. Separately, the University of Michigan preliminary consumer sentiment survey for December jumped to 73.4, the highest since September. The index rose to 69.3 from 67.4 two weeks ago, sending the yield on the 10-year note to 3.56 — its highest level since August.
In other news, the U.S. trade deficit narrowed in October. It declined to $32.9 billion from $36.5 billion. Business inventories in October rose 0.2%.
The Mortgage Bankers Association reported an increase in applications for the week ended Dec. 4, in spite of a slight uptick in rates. Purchase applications rose 4.0%, while refis jumped 11.1%.
If the economists are right about the indicators due this week, it could be a tough one for Treasuries. Predictions for almost every report indicate that the economy is getting back on track, which would ignite more selling in 10-year notes. But the reports will fall by the wayside if the Federal Reserve, which meets Wednesday, indicates in any way that it is considering a rate hike. No one expects that, but traders will hold their collective breaths until the statement is read.
Tuesday’s November producer price index, which looks for wholesale inflation, should rise 0.9%, which would be leap past October’s 0.3% increase. And the more-important core rate should rise 0.2% versus a 0.6% decline in October.
Wednesday’s consumer price index, which looks at inflation at the retail level, might also indicate rising prices. But the more important core rate should only creep up 0.1% versus a 0.3% gain in October.
Although the Fed has repeatedly said it will control inflation, should there be any signs, traders are a wary bunch. Inflation robs fixed assets of their value over time.
Tuesday also should show an increase in industrial production for November. It’s predicted to rise 0.6% — much more than the previous 0.1% increase. And capacity utilization could step up to 71.7% from 70.7%.
Wednesday also features housing starts/building permits for November. Starts are expected to rise to an annual rate of 575,000 units from 529,000 units, while permits should jump to an annual rate of 570,000 from 552,000. Big numbers like this could signal a turnaround.
Thursday’s reports begin with the totally unpredictable first-time jobless claims for the week ended Dec. 12. The outlook for leading economic indicators in November is not as iffy. Analysts expect a 0.7% increase versus a 0.3% increase in October. This would indicate better economic times ahead.
The final report comes from the Philadelphia Federal Reserve Bank. Known as the Philly Fed index on manufacturing conditions, it queries manufacturers regarding their outlook on business conditions. This month’s results should find a 16.5 reading, which is just short of the 16.7 posted in November.
