US Stocks began the day on the down side, and all three indexes have slid further negative in the first hours of trading. Mortgage Bonds are playing the role of beneficiary experiencing pricing gains of 50bp, or more.
Stocks are feeling pressure from a possible increase in Oil pricing, more bad news from Financials, and recessionary fears in Europe. Oil is considered to be technically in an oversold state that could result in a bounce to pricing, and this weekend brought up geo-political fears over supply, with Iran announcing they have twice as many centrifuges as reported previously, while Nigeria reported 2 rebel attacks on its pipelines. Financials were buoyed by the weekend's passage of housing legislation to backstop Fannie, & Freddie, but that was offset by the FDIC shutting down 2 more banks, bringing the total this year to 7. Fears that Europe is edging closer to recession come from a German Consumer Sentiment poll (their equivalent to our University of Michigan poll) showing consumer confidence falling to a 5 year low.
Mortgage Bonds have responded well so far, gaining back all of Friday's losses. The Dollar posted gains last week against the Euro as speculation grows the the European Central Bank may have to cut rates to head off recessionary fears. Minneapolis Fed President Gary Stern made comments he expects our economy is still in a position to get worse, and that recovery may take several more quarters. He also stated he believes the Fed is well positioned to deal with any increases to inflation. Both of these statements were very Bond friendly. Later today Fed Governor Frederic Mishkin will be speaking, and if his comments echo Stern's, Bond's should benefit further.
Bonds are pushing up against pricing resistance in the form of their 25 day moving average, but there is little to cheer for from Stocks so far today. As long as the headlines stay away from Inflation, and focus on poor earnings by Stocks, I will continue to recommend floating in the hope we can break above that level, and change the resistance to support.
Make it a great day!
Ron Brown
FHA & VA Loan Specialist
First Mortgage Company of Washington
615 E Pioneer Ave.
Puyallup, WA 98372
(253) 520-0000
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