Hey there - enjoy the long weekend!  Lots happening on the economic front with many events adding fuel to the fire and debate on how long rates will remain at these levels.  Below are a few commentaries that speak to the rate situation.  I for one would not recommending sitting on the fence for too long.  Have a wonderful weekend; contact me when I can be of assistance.

From Think Big, Work Small

Locking advice on when to lock on mortgage applications:

7-15 days       lock

15-30 days     lock on any improvements

30+ days         float

Interest rates spiking higher this morning, the stock indexes jumping; both moves huge. The August employment report has nailed the bond and mortgage markets that had already looked very weak this week. Early this morning the 30 yr FNMA Sept coupon is trading below its key 20 day moving average, the first time we have seen that since last April. The 10 yr note yield at 9:00 this morning up 13 more basis points at 2.76%, mortgage prices down 18/32 (.56 bp) from yesterday's closing levels. At 9:30 the DJIA opened +95, the 10 yr -32/32 at 2.74% +11 bp, mtg prices at 9:30 -13/32 (.41 bp) on 30 yr mtgs.

The August unemployment rate at 9.6% was right on, up 0.1% from July; non-farm payrolls declined just 54K against general estimates of -100K, private job payrolls reported up 67K against estimates of +20K. The BLS reported revisions to June and July; the original totals for the two months was a decline of 351K jobs, revised to -229K. While employment remains a serious impediment to economic growth, the surprising improvements in the data released this morning are sending interest rate higher and stock indexes opening strong. The take away on the data is that while the economy is struggling, it isn't going off the cliff.

Some better news on the housing sector yesterday, July pending home sales were up 5.2% while estimates were for a slight decline. Pending home sales, contracts signed but not yet closed. While better, the housing sector remains in depression.

Yesterday afternoon in a surprise announcement the White House announced the President would make a statement at 10:00 this morning. Markets expecting some announcement on tax reductions for small businesses, as this is being delivered he hasn't begun his remarks.

At 10:00 the August ISM services sector report; the estimates for the overall index was a read of 53 frm 54.3, it fell to 51.5 the second lowest index reading this year. The employment component fell to 48.2 frm 50.9, new orders slipped to 52.4 frm 56.7 and prices 60.3 frm 52.7. The weaker data stopped the selling in treasuries and mortgages and took some wind out of the buying in equities. (Any index over 50 is considered expansion, under 50 contraction).

We have been warning for over a week that the interest rate markets were softening, after the employment report today the 10 yr note yield had jumped 20 basis points in rates since the close on Wednesday, mortgage rates on 30s up 7 basis points. Trading over the past two weeks implied investors were becoming less interested in treasuries as safety moves with the rates so low it had changed the risk equation between hiding in treasuries and accepting a little more risk in equities. While rates are increasing it is unlikely they will increase too much more; the worst we can expect for the 10 yr is another 25 basis points higher to test 3.00% and mortgage rates up another 15 basis points on 30s. We continue to expect high levels of trading volatility; we suggest taking advantage of any rallies in the bond market, it is very likely we have seen the lows now for mortgages and treasury rates. While the news today (and this week) was stronger than expected, it was not really great news, but the Treasury market seemed to be priced to a worst case scenario.

From Freddie Mac

Modest Inflation Expectations Allow Mortgage Rates to Once Again Set New Record Lows

 

September 2, 2010

McLean, VA - Freddie Mac (OTC: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), and for yet another week, fixed-rate mortgages reached record lows, as did the 5-year adjustable rate in this survey. (The 30-year fixed-rate survey began in 1971, the 15-year began in 1991, and the 5-year adjustable in 2005.)

Quotes Attributed to Amy Crews Cutts, deputy chief economist, Freddie Mac.

•·         "The 12-month price growth of core personal expenditures remained at 1.4 percent in July, which kept overall inflation expectations well at bay. Fed chairman Bernanke reiterated this in his August 27th speech in Wyoming, noting that with inflation expectations reasonably stable and the economy growing, inflation should remain near current readings for some time before rising slowly. As a result, mortgage rates eased further this week to new historic lows.

•·         "House prices, however, appear to be firming. Home prices rose 2.3 percent between the first and second quarter of this year, reaching the highest level since the fourth quarter of 2008, according to the S&P/Case Shiller® National Home Price Index. In addition, 15 metropolitan areas in the 20-City Composite Index experienced annual house price growth in June, compared to 13 in May and 11 in April."

From Dick Lepre, San Francisco

 

Friday September 3, 2010

BLS Employment Situation Report is mixed.  It shows -54,000 jobs overall (expectation was -100,000), +67,000 private sector jobs, Unemployment rate up to 9.6%, Hourly Earnings +0.3% and a flat work week.    The report is indeed better than expected but this is a picture of a jobs market going nowhere and is most certainly not a sign of economic growth.  Many people reentered the jobs market last month.  That is why the Unemployment rate was up.  That could be because of that temporary end to extended unemployment benefits so I would not read anything into last month's change in the Unemployment Rate.

Treasuries sold off in early trading in response to a) the better than expected not as bad as expected overall number and the fact that the techs were massively overbought and now correcting.

I keep saying "the good news is that the bad news is not as bad as expected" which at first was a somewhat funny way to describe the situation but the fact that this has become the modus operandi is no longer funny.

Thursday September 2, 2010

Initial Jobless Claims were 472,000 last week, consensus was 475K, previous was 478K.  The jobs market is still weak.  Productivity (GDP/hr. worked) was -1.8%.  Unit Labor Costs were +1.1%.  Pending Homes Sales were +5.2% which is a rebound from the previous -2.8%.

The best story I found today in WSJ was that Ferrari was recalling 1,248 of their $250,000 a pop 468 Italias because of engine fires cause by bad glue.