Mortgage Updates
8/23/10 Market Commentary:
Mortgage investors will likely move into a defensive position this week opting to take a “wait-and-see” approach before giving consideration to pushing rates noticeably lower from current levels.
There is a huge amount of “bad” economic news already priced into the market. If the home sales data and/or the revised GDP figure prove stronger-than-expected – look for investors to respond by pushing rates higher.
8/16/10 Market Commentary:
This week’s battery of mostly second tier economic news is unlikely to exert much, if any influence on the trend trajectory of mortgage interest rates.
In the midst of this data void mortgage investors will likely use trading activity in the stock markets as a guide to determine where to set rate and price.
In my judgment the Dow is likely to put in a temporary price bottom and begin moving higher over the coming five days. My technical analysis work suggests the Dow will not close below 10200 (Friday’s close was 10303.19) before perking up enough to climb into the 10800 range before running out of momentum on or before September 8th.
If my assessment proves accurate, expect rising stock prices to nudge mortgage interest rates fractionally higher while rate sheet prices slip simultaneously lower.
My current projections for the trend trajectory of the Dow – and by extension for the mortgage market – will be completely invalidated should the Dow close below the 10,200 mark this week.
8/9/10 Market Commentary:
Over the course of the next four trading days Uncle Sam will be splashing around in the credit markets looking to borrow $74 billion through a three-part auction process, the Federal Open Market Committee will meet in a one-day monetary policy session and investors will be provided with the most current readings for inflation pressure at the consumer level together with a look at cash register activity from the nation’s retailers. In my judgment, the post-meeting statement to be issued by the Federal Open Market Committee tomorrow fternoon at 2:15 p.m. ET holds the key to the trend trajectory of mortgage interest rates for the entire week. In my opinion policymakers will vow to keep their benchmark short-term interest rates near zero for an “extended period” — and will indicate their concern the budding economic recovery is at risk — but they will stop short of announcing any form of new stimulus program. If my assessment is correct, the stock market will be vulnerable to a rather sharp sell-off while mortgage interest rates continue to hover within shouting distance of current levels.
In the off-chance the Fed says the risks of the economy tumbling deeper into a recessionary spiral has increased to the point that immediate stimulus steps must be deployed – stocks will likely bounce back and forth in a wide trading range while mortgage interest rates initially knee-jerk rally to new lows on an intraday basis before a surge in profit-taking pressures create a long, slow leak back the other way.
In terms of economic reports the offerings will be light until the Labor Department issues their July Consumer Price Index figures simultaneously with the Commerce Department’s release of the July Retail Sales data on Friday, August 13th at 8:30 a.m. ET. Each of these two data sets are expected to show slight month-over-month gains — but neither one will probably prove threatening enough to directly induce mortgage investors to make strong upward adjustments to their offered note rates. In my judgment the Fed meeting will be the “wildcard” with respect to the near-term direction of mortgage interest rates.
Any mention in the Fed’s post-meeting statement of the near-term deployment of additional economic stimulus and/or an indication they are planning to reinvest proceeds from their maturing mortgage-backed security portfolio into Treasury obligation or mortgage-backed securities will tend to be supportive of steady to fractionally lower note rates.
8/2/10 Market Commentary:
Of the companies that have already handed in their corporate report card for the second-quarter of 2010 — 75% of them have exceeded earnings expectations, 10% reported earnings in line with analysts’ expectations and 15% missed their performance targets.
Corporate America is now sitting on a boatload of cash – much of it profit derived from earlier government economic stimulus programs. Unfortunately, little of these financial gains appear to be filtering back into the general economy in the form of job creation.
Friday’s much anticipated July employment report is expected to show an additional 63,000 jobs were lost last month. Some of the expected decline can be traced to the government who laid-off 144,000 nose-counters following the conclusion of the 2010 Census. For their part — private employers are expected to have created 90,000 more jobs in July after adding 83,000 positions in June – woefully short of the monthly employment gains needed to successfully pull the economy out of its current recessionary nosedive.
I wonder how long it will be before Corporate America picks up on the fact that lacking a notable resurgence in consumer spending (a condition made possible through job creation) — profit expectations for most of them will almost inevitably fall far short of their targeted marks for the coming quarter. I certainly don’t want to be guilty of “howling-at-the-moon” – but it is worth noting that it doesn’t take long for this process to become an extremely slippery slope with respect to meaningful future job creation.
I think it is reasonable to expect some profit-taking following last week’s big rally in the mortgage market to push rates fractionally higher in the early part of the week – but there appears to be little else longer-term to be concerned about at this juncture.
7/12/10 Market Commentary:
From a technical perspective I see a number of signals suggesting the lowest mortgage interest rates of the year were either established last week – or will be set over the course of the next five days. Heads up!
On Wed. July 14, 8:30 a.m. ET the June Retail Sales numbers will be announced. Consumer spending is a major driving force behind economic growth and it will be virtually impossible for the recovery to gain traction without it. Report numbers that match or fall below the consensus estimate will tend to support steady to perhaps fractionally lower mortgage rates. The risk is that June retail sales numbers prove stronger than expected. If so, the upward pressure on mortgage interest rates will likely increase.
7/5/10 Market Commentary:
Mortgage investors will straggle back to their desks, sunburned and a little grumpy following the just completed three-day summer holiday. They will almost certainly be in no mood to be aggressive with their rate sheet pricing or very accommodating with the level at which they choose to set interest rates.
There is nothing of consequence on the economic calendar for the coming holiday shortened week — which means trading action in the stock markets will likely exert larger-than-normal influence on the trend trajectory of mortgage interest rates.
From a technical perspective I believe the Dow either set a significant low on Friday at 9614 — or it will likely set a major multi-week low sometime during the next four business days at a price not less than 9350. I also see a number of technical signals flashing in the Treasury and Treasury futures markets suggesting a significant price high is imminent there as well.
Should my collective technical assessment prove accurate – mortgage interest rates may not revisit current levels again until the last month or so of the year – if then. Both 30-year fixed rate and 15-year fixed rate mortgages set all-time record lows last week – and I will concede they may yet shatter those records before mid-month. But you and I both know that trees don’t grow to the sky — and rallies in the mortgage market don’t last forever.
In my judgment, no reasonable person would ever bet a dollar to make 25 cents on a single flip of a “fair” coin. You don’t have to hold a doctorate in statistics to recognize that the risk:reward ratio attached to this bet guarantees that you will lose, and lose big — even though statistically speaking the coin will fall in your favor 50% of the time. I see a number of reasons to believe the mortgage market is currently manifesting a risk:reward environment very similar to the coin toss scenario I just described.
I respectfully suggest conservative pipeline risk managers give every consideration to dramatically reducing their “floating” loan positions should the price of the Fannie Mae 4.5% 30-year mortgage-backed security fall and close below 103.406. For those who choose to be more aggressive with their pipeline risk management strategies — I strongly recommend you unhesitantly move to convert all “floating” loans to “locked” should the price of the Fannie Mae 4.5% security fall and close below 103.125.
6/25/10 Market Commentary:
Friday’s nonfarm payroll numbers will take center stage in terms of the economic data scheduled for release this week. Until the employment data is released, look for trading activity in the stock markets to exert considerable influence on the trend trajectory of mortgage interest rates.
Should stock prices continue to decline this week, the resulting “flight-to-quality” flow of capital from these riskier asset classes into the relative safe-haven of bonds and mortgage-backed securities will be a strong positive for the prospects of steady to perhaps fractionally lower mortgage rates – at least during the run-up to Friday’s much anticipated news from the labor sector.
As I outlined above, mortgage investors have already priced-in expectations for a weak June nonfarm payroll report. Numbers that match or exceed the consensus estimate will likely induce investors to push rates lower. In the off-chance the economy lost fewer than 50,000 jobs and/or the national jobless rate hovers at 9.7% or lower – expect mortgage investors to respond with sharply higher note rates and significantly lower rate sheet prices. Play it by the numbers – price volatility will likely increase sharply.
6/18/10 Market Commentary:
Mortgage investors have already priced-in expectations for a quiet and generally mortgage market friendly week as far as upcoming economic data is concerned. As long as this week’s battery of macro-economic news generally matches or falls below the consensus estimates — mortgage interest rates will be apt to remain steady to perhaps fractionally lower at the expense of lower stock prices.
On the other hand, if any of this week’s reports reflect greater economic strength than analysts are anticipating – look for the stock markets to rally at the expense of unfriendly adjustments to your mortgage investors’ rate sheets (in the form of fractionally higher rates – and moderately lower prices). The mortgage market has been the beneficiary of a major global “flight-to-quality” buying spree since news of potential sovereign debt defaults in Europe first began to dominate the financial newswires back on April 5th.
As the days go by and the global investment community adjusts to the slightly diminished threat of an international financial meltdown – the flight of capital out of riskier assets into safe-haven investments like Treasury obligations and mortgage-backed security has begun to slow noticeably. If the world looks as if it is moving shakily toward more solid financial ground – global investors’ desire for safety will almost surely give way to their desire to maximize the return on their money.
Should this condition develop — mortgage rates are almost certain to edge higher. Heads up.
6/1/10 Market Commentary:
Until Friday morning’s non-farm payroll data takes center stage –the probabilities remain high that trading action in the mortgage market over the course of the coming week will be more strongly influenced by nagging worries over Europe’s debt crisis than the impact of any report, or combination of economic reports scheduled for release during the period.
From a technical perspective I see a number of signals indicating the stock markets have likely set a significant price low during the week ended May 28th — or will do so by the end of this week. If my assessment proves accurate, the return of rising stock prices will almost certainly steal much of the momentum from the multi-week rally in the mortgage market – a rally that has pushed the note rate on 30-year mortgages down to within a whisper of record all-time lows.
Friday morning’s nonfarm payroll report is shaping up to be a “wild-card.” There will likely be a hot debate raging in the financial media up and through the release of the May payroll figures. The argument will revolve around the distortion the government’s hiring of temporary census workers has, or has not caused in the May labor market picture. From my perspective it is worth noting the mail-in rate on census forms was higher than anticipated, which has likely reduced the total number of personnel needed by Uncle Sam.
So here’s the deal — mortgage investors have already priced-in their expectation that the headline employment number will be strong – likely in the neighborhood of 425,000. The national jobless rate is broadly anticipated to have ticked lower to 9.8% from April’s 9.9% level as well.
If the actual numbers closely match the consensus forecast – - and government census worker hiring is reported as less than 100,000 – look for the stock markets to rally while mortgage rates begin creeping higher. It will likely take a headline payroll number of 380,000 or so and census hiring of 100,000 or more to support the near-term prospects for fractionally lower mortgage interest rates. While such an outcome is certainly possible – I have strong concerns regarding its probability. Heads up.
5/17/10 Market Commentary:
The probabilities remain high that trading action in the mortgage market this week will be far more strongly influenced by nagging worries over Europe’s debt crisis – than the impact of any report or combination of economic reports scheduled for release over the next five business days.
Europe’s financial challenges have completely overshadowed a growing amount of data flowing from our own economy that is signaling the pace of recovery from the darkest days of the Great Recession is accelerating. But it doesn’t currently matter — everything is being trumped by the uncertainty regarding the long-term viability of a single currency European Union.
As long as this uncertainty exists – fear will drive massive amounts of global capital into the relative safe-haven of dollar denominated assets – and that is a condition that tends to be supportive of the prospects for steady to fractionally lower mortgage interest rates.
