Tuesday, January 6, 2009

My Crystal Ball Says 2009' .......

will be rockey and more of the same for banking, finance, and the housing industry. The mortgage industry (which this report will focus mostly on) is realing. New Home Sales appear to be heading south, and that's saying something given the current pace. The National Assocation of Realtors says pending new home sales fell to the lowest level on record in November, falling another 4% to a 82.3 index. Please don't ask me how to disect the index, these are their report(s) not mine. Either way, as in many future report(s) this doesn't bode well for 2009'.
That said, there is some good news which was reported today, the Fed actually made their first purchase of mortgage-backed securities this morning. The total amount of the purchase will not be known until it is announced on Thursday, January 8th. The Fed intends to keep a running tally of its aggregate purchases and will update its figure every Thursday until they’ve spent the allotted $500 billion. It is worth noting that the money the Fed will spend to support the mortgage and housing market is not attached to any debt – the Fed just printed it up.
While this capital solves the near-term problem of providing attractive financing to stimulate home buying – it comes with a price that will be paid later – in the form of higher inflation levels. That is a concern for a different day.

The Fed’s mortgage-backed securities purchases could not have come at a better time. Sure interest rates are at historic low's. I know you have heard that before, but trust me they are!!! Treasury prices have “taken-it-on-the-chin” since Friday as a growing number of investors are pacing the floor and wringing their hands over the massive $1.5 to $2.0 trillion worth of debt Uncle Sam plans to issue to support the financial markets and the economy in general this year.
The Obama administration have made it abundantly clear that the risk of doing too little to re-fire the country’s economic engines poses a greater risk to our collective financial well being than the risk associated with doing too much.

Outside of today's pending home sales report, the central feature on this week’s economic calendar will be Friday’s December nonfarm payroll report. The market has already priced in the expected loss of 485,000 jobs together with the likelihood the national jobless rate ratcheted up to 6.9% from last month’s 6.7% level. Chances are the actual numbers will match or fall within shouting distance of the consensus estimate values. If so, the report’s impact on the trend trajectory of mortgage interest rates will not be large, if it registers at all. In the off-chance the headline December payroll shows a job loss of 470,000 or less and/or the national jobless rates posts a reading of 6.7% or less look for mortgage interest rates to edge fractionally higher. Here's to a brighter 2009'!

Economic Releases

Release Date & Time
Economic Indicator
Consensus Estimate

Mon. Jan. 5,
Treasury auction announcement
The Treasury Department will announce the dollar size of the 3- and 10-year note auctions scheduled for Wednesday and Thursday respectively. Big numbers here will likely put some modest upward pressure on mortgage interest rates.

Tue. Jan. 6, 10:00 a.m. ET
Nov. Factory Orders
-2.5% vs. last -5.1%
The erosion in November factory orders will likely go largely unnoticed today. Look for this data to have little, if any direct impact on the trend trajectory of mortgage interest rates.

Tue. Jan. 6, 10:00 a.m. ET
Dec. Institute of Supply Mgmt.
Service Index
37.0 vs. last 37.3
Fixed Income MBS Traders have already priced-in expectations that this index of activity in the service sector slumped to an all-time record low last month. If the consensus estimate proves accurate, the reaction in the mortgage market will likely be limited. In the highly unlikely event this index posts a reading of 38.0 or higher -- look for mortgage interest rates to move fractionally higher as well.

Wed. Jan. 7, 1:00 p.m. ET
Treasury auctions 3-year notes
Most analysts believe this offering and tomorrow’s 10-year note offering will be an excellent early-year gauge of global investors’ perception of risk. Strong demand for both offerings will tend to be supportive of steady to fractionally lower mortgage interest rates. If the yield on the 3-year note climbs above 1.165% and/or the 10-year note posts a yield higher than 2.430% on a closing basis look for mortgage interest rates to creep higher as well.

Thurs. Jan 8, 8:30 a.m. ET
Initial jobless claims for the week ended 1/3
Further erosion in the employment sector is broadly anticipated by investors and has already been deeply priced into the current market. Today’s figures will likely draw little more than a passing glance from market participants.

Thurs. Jan. 8, 1:00 p.m. ET
Treasury auctions
10-year notes
Should the 10-year note posts a yield higher than 2.430% -- look for mortgage interest rates to creep higher as well.

Fri. Jan. 9, 8:30 a.m. ET
Dec. Nonfarm Payroll
Jobless Rate
Avg. Hourly Earnings
7.0% vs. last 6.7%
+0.2% vs. last +0.4%
This data set will only be a threat to the prospects of steady to fractionally lower mortgage interest rates if the headline number posts a job loss of 470,000 or less and/or if the national jobless rate posts a reading of 6.7% or less. The probabilities are very low that one or both of these conditions will occur.

Fri. Jan. 9, 10:00 a.m. ET
Nov. Wholesale Inventory
-0.8% vs. last -1.1%
There is little doubt that slumping demand has taken a heavy toll on the wholesale inventories – so this report will only measure the degree of weakness. This old, stale bit of macro-economic news will likely draw nothing more than a disinterested glance from mortgage invertors today.