Mortgage Market Snapshot 05-17-2011

At 8:30 April housing starts were worse than expected, down 10.6% to 523K units annualized with forecasts up 2.8%; March starts were revised higher, up 12.9%. April single family starts -5.1%. April building permits expected down 0.7% fell 4.0%. We don't have a lot to add to the report in that it continues to slide, as long as housing does not show any recovery there is little anyone should expect in the way of economic improvement. We are amazed, and even somewhat shocked that there is very little outward attention to the crisis in Washington; possibly because there is not much that can be done except to wait it out. Interest rates are not the problem; inventory levels are and that can't be changed quickly. Tight underwriting, low appraisals, banks unwilling or unable to make deals with investors willing to buy properties but at prices banks won't yet accept.

More not so good news at 9:15; April industrial production was expected up 0.4%, it was unchanged; March production revised frm 0.8% to +0.7%. April manufacturing production fell 0.4%, the first decline in manufacturing since June 2010. April factory usage expected at 77.7% fell to 76.9%, March factory use originally reported at 77.4% was revised to 77.0%.

This is only Tuesday but each economic release so far has been weaker than analysts and economists were estimating. Yesterday the Fed's NY manufacturing report a lot weaker than thought and prices pd for materials jumped. Today three data points also weaker. Commodity prices continue to fall as the economic outlook deteriorates; gold, crude oil, silver all lower this morning being pushed down as the economic outlook worsens. Yesterday the GDP outlook for this year was revised from +3.3% to +2.8%, the second revision lower and likely won't be the last. A double dip economic recession? Not yet willing to buy that but there will be increasing talk about it along with renewed use of the word stagflation.

The DJIA at 9:30 opened down 80, the 10 yr note at 9:30 at 3.12% -3 bp and mortgage prices +.22 bp frm yesterday's close.

In Europe the situation isn't much better; inflation moving higher in England. Consumer prices rose 4.5% in April after a 4% increase in March, data today showed. The median forecast of 32 economists in a Bloomberg News survey was 4.1%. Core inflation quickened to the fastest in at least 14 years. In Germany investor confidence declined for a third month in May as faster inflation threatened to curb consumer spending and Europe’s sovereign-debt crisis worsened.

The weak economic data this morning has finally pushed the key 10 yr note through its resistance at 3.14% fueling the outlook for more declines in mortgage rates and US treasuries as money is moving to safety and away from risk trades. With most commodity prices falling recently inflation fears have lessened for now. Crude oil now down about $8.00 frm highs two weeks ago, gold off $90.00/oz frm its highs. The stock market is seen by Wall Street as just in a corrective pattern, we submit it is much more than just a correction----more an adjustment that prices had exceeded future economic reality.

Can the 10 yr treasury hold below 3.14% as it is now into the close today? Likely it will be dictated by how the spastic stock market trades through the session. The key equity indexes are weaker now but recent activity has been choppy, still a multitude of bulls out there. Reproduced from Think Big Work Small data provided by Sigma Research.