Financial Report ~ June 1st
This will be a new regular feature to give you an update on the markets and how they affect mortgage rates.
Weekly Preview
Last Week: The Treasury markets saw some slight increase in interest rates in another volatile trade. Mortgage rates were essentially unchanged. The week was marked with Treasury selling another $113B of notes and surprising jumps in existing and new home sales (+7.6% and +14.8% respectively). Two reports on consumer confidence and sentiment were a little better than a month ago, but these are less significant than hard market data as both the Conference Board’s consumer confidence report and the U. of Michigan’s consumer sentiment report are mostly emotional readings predicated on how the stock market and interest rate markets are performing. By the end of the week, after continued high market volatility, the stock market ended with not much change from the previous week. The sovereign debt problems in Europe continue to be the dominant concern in the equity markets. Fitch, the rating agency, down-graded Spain’s sovereign debt rating from AAA to AA+, adding to the angst that debt issues may become more strained.
This Week: Expect more market volatility in the equity and interest rate markets. The stock market, based on the key indexes, is still too high given the concerns emanating from Europe and what we see as a slowdown in China’s expansion. The outward driver for US markets is captured in the movement of the euro currency; as it declines against the dollar, US stock markets will be pressured. The euro may find support at $1.20 dollars per one euro (Friday the level was $1.23). No Treasury borrowing this week; the giant this week is the May employment data on Friday (early estimates are an increase of 500K jobs with unemployment at 9.8%). Tuesday a key data point on the manufacturing sector (ISM index). Thursday it’s the ISM services sector report. Expect increased concerns that the US economy will slow based on the previous excessive bullish outlook that had rallied equity markets. No inflation and increasing concerns that the economic outlook is weakening will support low interest rates for many more months.
Market Snapshot for May 31st
Treasuries and mortgages took a beating yesterday on the very strong rally in the stock market which was fueled by relaxed sentiment over problems in Europe on comments from China it would continue investments in Europe. That was the headline; on top of that as we have been mentioning for the last few days, the stock market was technically very oversold and the bond market equally overbought. The 284 point increase in the DJIA yesterday somewhat alleviated the oversold technical outlook; the 10 yr note 9 day relative strength index increased to neutral from very overbought readings on the increase of 17 basis points in rate. Mortgages prices fell 19/32 (.59 bp) following selling in the treasury market. (This is the price for mortgage backed securities).
This morning the stock index futures at 9:00 were fractionally better, but not much; the 10 yr note at 9:00 up 13/32 at 3.32% -4 bp and mortgage prices +7/32 (.22 bp) from yesterday’s close. At 8:30 April personal income and spending; income was as expected, up 0.4%, while spending was soft, unchanged on the month against estimates of +0.3%. It was the weakest sales data since December of 2009. While there was no immediate reaction to the report, the lack of spending likely took a little away from the stock market.
At 9:30 the DJIA opened weaker, down 30 points; still cannot follow through after a strong previous day–but the day is just beginning. The 10 yr at 9:30 +16/32 at 3.30% -6 BP and mortgage prices +9/32 (.28 bp).
At 9:45 the May Chicago purchasing managers index, data on manufacturing in the Midwest region, was expected at 60.0 from 63.8 in April, it fell to 59.7; the new orders component declined to 62.7 from 65.2, the employment component fell to 49.2 from 57.2 and the prices component dropped to 64.0 from 71.4 on lower energy prices. The softer than expected report added more declines in the stock market but not much. Any of the index readings over 50 are indications of expansion, while under 50 indicates contraction.
Finally today, and this week and this month, the U. of Michigan consumer sentiment index was forecast to be at 73.2 from 73.3 previously. The index jumped to 73.6 from 72.2 at the end of April. The expectations index increased to 68.8 from 66.5 and the 12 month outlook increased to 83 from 80. No reaction to the report as the various indexes are well contained at these levels.
This is the last day of the month, and the beginning of the first summer holiday weekend. The bond and mortgage markets will close early at 2:00 this afternoon but stocks will go the distance until 4:00. Of course Monday is Memorial Day and all US markets will be closed. Trading today has to consider that European and Asian markets will trade on Monday leaving US investors somewhat naked on Monday; that will likely influence trading today.
The very key euro currency this morning was slightly weaker, a plus for US equity markets; however, it has moved to unchanged by 10:00 this morning.
Although the equity market is lower this morning, so far it is not by much; if the equity indexes don’t get clobbered as they have after every strong rally in the past month, we would consider it a good day for stocks and add more concern about interest rates.
Think Big Work Small
Note the new Fannie Mae guideline being talked about. Basically they are saying if you get a conforming loan the lender will pull your credit report again prior to closing and ensure your credit position hasn’t changed enough for you not to qualify. All this means is you should put off any credit purchases until after the close. Better yet, put off your credit purchases until you have the cash to buy whatever it is you want. Novel concept, that!
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