CAN YOU SAY VOLITILE?!? MBS prices have been all over the board this morning, and are now down quite a bit (FNMA 4.50 -7/32) on some decent economic data. The stock market is also down (Dow -27.96, S&P -3.99) after a good run these past few days. Consumer Price data held no surprises as it came in essentially on target (CPI 0.2% vs. 0.2% est., Core CPI 0.2% vs. 0.1% est.). The Philly Fed print came in worse than expected (11.5 vs. 12.0 est.), while the NY Manufacturing Index came in far better than expected (34.57 vs. 17.25 est.). Initial Jobless Claims also came in better than expected (514k vs. 520 est.) dropping the 4-week average from 540.5k to 531.5k. It is unclear where the market will trend the rest of the day.
Tomorrow, Friday, 10/16 brings Industrial Production (est. 0.1%) and Consumer Sentiment (est. 73.5). Industrial Production will be watched for more signs of improvement in economic activity. A better than expected read here may put upward pressure on rates. An inline number or worse may keep rates in check. Again, Consumer Sentiment is not a true economic indicator, but it does shed light on the mentality of the American consumer. The American consumer will drive us out of this current funk we are in, so his/her feelings cannot be ignored. A better than expected number may put upward pressure on rates, as the markets will see this as a sign that spending may pick up. A worse than expected print may send rates lower, as consensus will figure that consumers will continue to hold tight on their wallets, stunting a would-be recovery.
Will Staney
Sr. Mortgage Banker
WJ Bradley Mortgage Capital
12444 Research Blvd. Ste. 103
Austin, TX 78759
(512) 377-1468 Office
(512) 644-1587 Cell
(866) 953-0155 Fax
MBS prices are down on the day (FNMA 4.50 -3/32), but off of session lows. The stock market is in rally mode (Dow +111.93, S&P +13.56). Earnings continue to be strong. Intel and JP Morgan both easily topped expectations. The dollar index is at a 12 month low. These are all going to be bond-negative as strong earnings and a stock market rally imply economic stabilization/health and a weak dollar suggests inflation concerns. Import prices posted a 0.6% increase, while export prices were flat. These had little impact in bond prices. Retail Sales came in better than expected (-1.5% vs. -2.1% est.), but looked to be influenced by auto sales. Retails Sales, excluding auto purchases, came in worse than expected (-0.5% vs. +0.2 est.). Business Inventories gave some support to bond prices as the print came in worse than expected (-1.50% vs. -1.0% est.). The minutes from the Sept. FOMC meeting will be released at noon MT. Watch for the contents to be dissected by the media for signs of change in FED policy, stance, or outlook. Again, talk of an improving economy and/or mention of tapering off of their open market accommodations may press rates higher. If they look to be leaning more towards extending these programs and/or they are seeing a tougher road ahead than previously expected, rates may stay in check.
Tomorrow, Thursday, 10/15 has Consumer Price data on tap. CPI (est. +0.2%) and Core CPI (est. +0.1%) will be released at 6:30am MT. It wouldn't be Thursday without the weekly Jobless Claims data (est. 525k). We will also see the NY Empire State Index and the Philly FED. Consumer Price data should be watched for signs of accelerating inflation. Inflation is a piece of the puzzle that has yet to rear its head. There are expectations worldwide that inflation will become a problem as we recover from our current down-turn. If/when these concerns become reality, bond prices are likely to suffer as inflation is a key driver when the FED decides to raise (or not to raise) interest rates. A higher than expected CPI print may push rates higher, while a lower print will likely keep rates in check. The Indexes out of PA and NY should be watched as well. These indexes track manufacturing, prices, and employment in their respective regions. Any strong increases here may put upward pressure on rates. As always, watch that Jobless Claims number. It tends to make the headlines and move markets regardless of its volatile tendencies.
Will Staney
Sr. Mortgage Banker
WJ Bradley Mortgage Capital
12444 Research Blvd. Ste. 103
Austin, TX 78759
(512) 377-1468 Office
(512) 644-1587 Cell
(866) 953-0155 Fax
MBS prices are faltering this morning (FNMA 4.50 -22/32) on talk of possible rate hikes and reigning in some of the FED's accommodative programs. There is also a hangover from the poor 30 year auction seen yesterday. As we discussed, the 30 year Treasury auction was poor by recent standards. The market may also have been a little overbought these past few weeks. Some of the trade today looks to be corrective. The Trade Balance (or imbalance as it were) came in lower than expected at -$30.78 Bil. vs. a -$32.9 Bil. estimate. This is unlikely to have influenced today's' downward movement. Stocks are up (Dow +33.93, S&P +1.78) again and the dollar is strengthening, adding some fuel to the sell-off. Basically, all of the talk and market data today is bond-negative.
Next week brings far more data than we saw this week, even though data will only be released Wed-Fri. Wednesday has Import/Export Prices, Retail Sales, Business Inventories, and FOMC Minutes on tap. Thursday, is Initial Claims (as usual), Consumer Price data, and the Philly Fed Index. On Friday, we have Capacity Utilization, Industrial Production, and UofM Preliminary Consumer Sentiment. Pretty much any of these has the potential to move rates. We will discuss in more detail as the announcements approach. Also keep an eye on corporate earnings announcements. The perceived health of the US business environment will have an impact rates. As always, positive results may push rates lower, while poor earnings may keep rates in check.
Have a great weekend!
Will Staney
Sr. Mortgage Banker
WJ Bradley Mortgage Capital
12444 Research Blvd. Ste. 103
Austin, TX 78759
(512) 377-1468 Office
(512) 644-1587 Cell
(866) 953-0155 Fax
MBS prices are up on the session (FNMA 4.50 +4/32), but currently trading sideways. Jobless Claims came in lower than expected (521k vs. 540 est.), although not by much. Wholesale Inventories were worse than expected (-1.3% vs. -1.0 est.). The stock market is in rally mode again today (Dow +100.13, S&P +12.01) on strong earnings, a weakening dollar, and not-so-bad Initial Claims. Yesterday's 10 year Treasury Auction was strong (3.01 bid-to-cover, 47.4% foreign bidder take), but today's 30 year showing was not so great (2.37 bid-to-cover, 34.5% foreign bidder take). So, we saw a weak rally surrounding the 10 year results, but there will likely be no follow-through on today's less-than-stellar 30 year offering. But, we will likely not see a near-term sell-off either.
Tomorrow, Friday, 10/9 has little data and auctions are over for the week. The lone data point tomorrow is the Trade Balance (est. -32.9 Bil.). The Trade Balance print measures the difference between US imports and exports of goods and services. Surprises here can influence estimates on GDP and other broad economic measures. Large disparities in the Trade Balance number may move rates. However, lately, no real rate movement has come following the Trade Balance print.
Earnings season has begun. If you recall from our discussion last season, earnings reports are a strong driver of market movement. With expectations beaten down in the midst of our worst recession in 75 years, eyes will be on these earnings reports for signs of improving business conditions. Also recall that headlines indicating that companies are "beating" earnings expectations may be misleading as we have to remember that many companies will intentionally look to lower earnings expectation, so they may ensure a "win". That's not to say that earnings releases should be ignored; they should just not be given too much weight. A win is a win, as they say, but keep it in the context of a weak market and weak expectations. In any case, a strong earnings season is likely to prolong the current bull market in stocks, thus putting upward pressure on rates. Weak earnings may keep rates in check, as the FED will be less likely to raise rates if business is slow and inflation is contained.
Will Staney
Sr. Mortgage Banker
WJ Bradley Mortgage Capital
12444 Research Blvd. Ste. 103
Austin, TX 78759
(512) 377-1468 Office
(512) 644-1587 Cell
(866) 953-0155 Fax
MBS prices are up a bit on the session (FNMA 4.50 +2/32), although are losing steam after a weak rally earlier today. The ISM Services Index came in slightly higher than expected (50.9 vs. 50.0 est.). This had little impact on the bond markets. The stock market is up (Dow +68.39, S&P +9.85) adding to downward pressure in MBS prices (rates up). No more data will be released today, but watch for the stock market and talk of the upcoming Treasury auctions to provide bias for bond traders.
Tomorrow, Tuesday, 10/6 is another dead day for data. No economic data will be released, but we have the 3yr Treasury note auction at 11am MT. This is the first of three note offering this week. As we know, these auctions will be seen as a barometer of foreign and domestic demand for US debt, and debt instruments in general. Watch for a bid-to-cover of 2.50+ and an indirect bidder participation of 50%+. Again, the bid-to-cover number is the ratio of orders placed to orders filled. It is a direct indication of demand for a given offering. The indirect bidder participation percentage is a reflection or foreign demand for the same offering. Typically, we see foreign buyers purchase at least half of any given note issue. Any perceived weakness in these numbers may spark a sell-off in bond markets (rates up), while another average or above average auction will likely keep bonds in check.
As always, keep an eye on the stock market. We had a sharp sell-off in the stock market last Thursday that seemed to contribute to the strong MBS pricing we saw late in the week (rates down). There still exists this feeling out there that a large scale stock market correction is looming. So, any time we see a 150pts+ sell off in the US stock market, we are likely to see a short-term rally in bonds (rates down). These stock market drops are more likely to move the bond markets that stock market rallies of the same magnitude. This may be due to the media/analyst consensus that we almost need to have a sharp correction in stocks before we see any further significant gains. So, any sign of a stock market stall will beget temporary buying of bonds as a safety play.
Will Staney
Sr. Mortgage Banker
WJ Bradley Mortgage Capital
12444 Research Blvd. Ste. 103
Austin, TX 78759
(512) 377-1468 Office
(512) 644-1587 Cell
(866) 953-0155 Fax
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