Jon Cagle ~ Lane County ~ Oregon ~ Direct FHA, VA, USDA Lender

Market Insider

This Week; its all about employment with the ADP data hitting Wednesday and the BLS data on Friday. Last week stocks had a very strong week after being well oversold; the US bond and mortgage markets got hit hard. The Greece dance on the edge of default was temporarily side-stepped, QE 2 ended leaving markets to speculate on whether investors will be willing to pick up the slack, and the economic outlook improved a little. Interest rates increased on all of the above and will likely be extremely volatile again this week.

Rate markets have likely seen their best levels for awhile, as long as the economic data confirms growth and no other European country headlines into default fears. The prime reason though that we expect rates will eventually head a little higher is simply that rates got too low given the uncertainties facing global financial; and equity markets. The economy is not growing nearly fast enough to lower unemployment and the Fed will keep short term rates at their present zero to 0.25% level; that however isn't a reason to expect longer term rates to fall back to under 3.00% on the bellwether 10 yr note.

Market Insider

The bond and mortgage markets opened a little better this morning ahead of key data points at 10:00 when the June ISM manufacturing report is released and the U. of Michigan consumer sentiment index is revealed. Stock indexes in early trading about unchanged. Manufacturing growth is slowing from China to Europe; China’s factory index fell to the lowest level since February 2009, while in the 17-nation euro area, a gauge slipped to an 18-month low. German manufacturing expanded at the weakest pace in 17 months, while Italy, Ireland, Spain and Greece contracted. In the U.K. and India, output growth also slowed.

As noted in the past two days, expect increased market volatility in equities, bonds, energy and precious metals in the next week or two. The rapid increase in interest rates since Tuesday appears to have caught investors off guard, markets will take some time to assess the potential impact on economies, inflation and the potential implications of an interest rate increase in Europe next week. The data this morning is adding to the swift turn in outlooks for the economy; after a series of very weak data points on May data now the data suggests the economy is showing slight signs of improvement. The stock market jumped higher on the 10:00 data, the 10 yr note yield hit 3.20% +4 bp on the initial reaction to the ISM report.

The mortgage bond market is now down to the worst levels of the day. Rates should move higher.

Market Insider

The bond and mortgage markets opened better this morning after the strong selling the last two sessions taking rates up 20 basis points. The Greek debt issue is off the radar for the moment after its parliament voted to cut spending and qualify for assistance from the IMF and EU keeping Greece from defaulting, at least for now. Safety trades in US treasuries being closed and the very weak treasury auctions this week along with the end of QE 2 today---all combined to drive rates higher in a rapid move. Mix in that the ECB will likely increase its base interest rates next week and the tone has changed. Both the 10 yr note and FNMA 4.0 coupon hit and held their respective 200 day averages but broke all other shorter term averages, the momentum oscillators are now in bearish levels. As we continue to point, the bond and mortgage markets are going to remain volatile over the next week or so as investors work through the end of QE 2, Europe's continuing debt issues and the weakening economic outlook. We are not looking for interest rates to increase in a major way but it is unlikely rates will return to the best levels seen three or four days ago.

Today is the end of the month and the end of the quarter, to some extent today trading in equities and bonds may be impacted on moves large investors need to make to adjust their portfolios for the end of the 2nd quarter.

After opening better this morning, the bond and mortgage markets have taken a nose dive now and are much worse then they began.

Market Insider

Treasuries and mortgages opened a little soft this morning with the pre-market trade in equities pointing to a better open at 9:30. Stocks look better, with European shares rebounding from a three-month low, and the euro strengthened as the Greek government prepared to face a confidence vote that may determine whether it avoids a default. Oil and palladium gained in Europe. Today’s vote of confidence in Prime Minister George Papandreou is likely to determine how soon the nation can win international aid to shore up its finances. European Union leaders have insisted he gain multi-party support for austerity measures that are a condition for the aid needed to avoid default as soon as next month. The all-critical vote will occur at 5:00 pm eastern time this afternoon and one way or the other overnight markets will likely be volatile; a positive vote will likely cause selling in the US bond and mortgage markets as safety trades are lifted.

Today the Fed begins its FOMC meeting; nothing will occur today, tomorrow the meeting concludes with the release of the p[policy statement at 12:30 then at 2:15 Bernanke will hold the second press conference immediately after an FOMC meeting. There will be a lot of chatter today and tomorrow about what the Fed may do now that QE 2 will end at the end of next week. Markets are very much like a coffee clutch where everyone sits around and gossips; in the end what the Fed may or may not do is very uncertain so al the chatter we have to endure today should be ignored. NO sense in sweating something that is totally unknown by anyone----just a lot of talk.

The only economic report today; at 10:00 a few minutes ago, May existing home sales were reported. Markets were looking for a decline of 5.0% to 5.8%; sales were down 3.8%. Single family sales down 3.2%; the median sales price $166,500, down 4.6% yr/yr due to distressed sales. According to NAR there is a 9.3 months supply on the market, slightly higher than in April. The headline looked good but the details (9.3 months supply) not so good and banks still sitting on thousands of foreclosed houses. As long as our government refuses to make housing the key to US economic recovery there is little chance of any significant employment improvement. Barney the Frank should go down in infamy.

Market Insider

The bond and mortgage markets started a little better this morning after a bout of selling yesterday as the equity market bounced off very oversold technicals; the bond market equally extended, overbought as we note two days ago. This morning in early activity the stock indexes were weaker. Yesterday's minor price declines and the improvement in equity markets were not n any way fed by a change in the over-riding fundaments of an economy weakening, energy prices and commodity prices increasing.

This morning, in a week with hardly any economic data, May import prices were expected down 0.7% but increased 0.2%; export prices were +0.2% against forecasts of +0.3%. The increase in import prices bothered traders a little but there is no reason to fret over inflation since markets refuse to look at food and energy prices as inflationary regardless of how much they increase. Then there is Bernanke, he continues to use the word 'transitory' to define the increases in oil and food prices; in his vernacular 'transitory' could easily mean years.