Tuesday, May 26, 2009

World and Economic News Affects

Investors are going to be under stress during the first three days of the week as the Treasury Department dumps a whopping $101 billion worth of supply into a market place already suffering a major case of indigestion. Add North Korea's repeated nuclear tests over the weekend and yesterday is adding confusion to the markets.

Case-Shiller reports this morning a 19.1 percent drop in HPA (home-price appreciation) in March. This is an all-time record pointing that we are not out of the housing decline woods yet. Because of this, I'll focus this post primarily on the mortgage markets.

Economic Calendar

Release Date & Time
Economic Indicator
Consensus Estimate
My Analysis


Tue. May 26, before the end of the day
The Fed will be buying inflation-indexed Treasury obligations maturing between 2010 and 2032. This event will probably have little influence on the trend trajectory of mortgage interest rates this trading session.

Tue. May 26, 10:00 a.m. ET
May Consumer Confidence
42.3 vs. last 39.2
The expected modest increase in this month’s measure of consumer confidence will probably not have much of an impact on the direction of mortgage interest rates today.


Tue. May 26, 1:00 p.m. ET
Treasury auctions $40 billion of 2-year notes
The yield on these securities is below 1.0% so investors are unlikely to push them lower. If my assessment proves accurate, this event will likely put some slight upward pressure on mortgage interest rates for the balance of the afternoon.

Wed. May 27, before the end of the day
The Fed will be in the credit markets looking to buy an unspecified amount of conventional Treasury debt maturing from 2012 to 2013. If the Fed leaves a large number of sellers standing around with unfilled orders this event will tend to put upward pressure on mortgage rates. A strong buying appetite by the Fed will likely do little more than support steady trading action in the mortgage market.


Wed. May 27, 8:30 a.m. ET
April Existing Home Sales
Up 2.0%
The pace of decline for existing home sales continues to soften – suggesting to some analysts that the housing sector may be within months of reaching a meaningful bottom. Affordability at its best levels in more than 17-years and 30-year mortgage rates within a whisper of their March record lows likely contributed to a solid gain in sales last month. If so, look for mortgage interest rates to struggle in any effort to move higher today.

Wed. May 27, 1:00 p.m. ET
Treasury auctions $35 billion of
5-year notes
The yield on these securities (above 2.0%) is probably high enough to draw solid demand from investors. If so, look for this event to be supportive of steady mortgage interest rates.


Thurs. May 28, 8:30 a.m. ET
Initial jobless claims for the week ended 5/23
Up 4,000
The number of people filing first-time claims for jobless benefits is expected to post a very small increase. Look for this data to have little, if any meaningful impact on the market today.

Thurs. May 28, 8:30 a.m. ET
Apr. Durable Goods Orders
Ex. Auto
+0.4% vs. last -0.8%
-0.3% vs. last -0.7%
These figures will likely draw little more than a passing glance from market participants.


Thurs. May 28, 1:00 p.m. ET
Treasury auctions $26 billion of
7-year notes
The yield on these securities (above 2.9%) is probably high enough to draw solid demand from investors and should therefore prove supportive of at least steady mortgage interest rates. In the unlikely event the results from this auction are weaker-than-expected – look for mortgage interest rates to edge higher.

Fri. May 29, 8:30 a.m. ET
Revised Q1 GDP
-5.5% vs. last -6.6%
This revised estimate of overall economic activity is expected to show some slight improvement – an event that is already priced into the mortgage market. If the revised GDP were to post a reading of -5.0% or better (a possible but not very probable outcome) it will probably spawn a rally in the stock markets at the expense of fractionally higher mortgage interest rates.

Wednesday, May 20, 2009

It's Memorial Holiday Already?

I have a question. How did we get to May already and what the hell happened to the first 4 months of 2009? We are quickly moving into housing season and while inventories may appear at historic levels, keep in mind that many of the largest banks are only now working through their inventory.

I expect levels to raise even further. I believe the next 4 months will be critical in how quickly or extended this recession will end/last. If inventories move, capital and purchase confidence will move forward to recovery. Should the press make a big deal of the historic inventory levels and potential home buyers sit on the sidelines waiting for "free houses" our economy could be in for a real challenge if not to fall directly into a recession. Keep in mind, we are still sitting at almost 10% unemployement.

Economic Calendar

Release Date & Time
Economic Indicator
Consensus Estimate
My Analysis

Wed. May 20, before the end of the day
The Fed wraps up three-days of announced purchases in the Treasury market. Prior to this week’s operations -- the Fed has spent $101 billion of the $300 billion they have authorized for direct Treasury security purchases. Today’s event should prove to be supportive of steady to perhaps incrementally lower mortgage interest rates.


Wed. May 20, 2:00 p.m. ET
The Fed releases the minutes of their April 28-29 meeting
This event will likely do nothing more than take up space on this week’s calendar. The Fed chose to leave short-term interest rates unchanged and refrained from increasing the size of their “war chest” for the direct purchase of Treasury obligations and mortgage-backed securities during last month’s meeting. It doesn’t get much more boring than that.

Thurs. May 21, 8:30 a.m. ET
Initial jobless claims for the week ended 5/16
Down 7,000
This time around first-time jobless benefit claims are expected to post a very small decline. Look for this data to have little, if any meaningful impact on the mortgage market today.


Thurs. May 21, 10:00 a.m. ET
Apr. Leading Indicators
Up 0.8% vs. last -0.3%
This index, created by the private Conference Board, is considered by many to provide an indication of the economy’s likely path over the next three- to six-months. The majority of the upward surge in this index was likely created by the strong rally in the stock markets. If stock prices are falling to this point in the week, it is likely most mortgage investors will shrug off this report. If, on the other hand, stock prices show strength in the early part of the week, a reading of 0.8% or higher for this index will likely encourage mortgage investors to push interest rates incrementally higher.

Fri. May 22, 2:00 p.m. ET
The equity markets (including bonds) closes early for the Memorial Day Holiday

Mon. May 25,
The markets is closed for the Memorial Day Holiday


If you have an American Flag, display it this weekend. If you don't, go buy one.
Be proud and thank the men and women who serve our country.

Tuesday, May 12, 2009

For My Mortgage Readers

If yesterday's MBS trading is any indication, this could prove is an interesting week as for the first time in two weeks, credit market investors won’t be dealing with a new round of massive incoming supply from Uncle Sam. Look for the trend trajectory of mortgage prices over the next five business days to be most influenced by Wednesday’s April Retail Sales figures and the trading action in the stock markets.

There's some debate in my capital market circles regarding the sustainability of the recent upturn in the underlying trend of the retail sales numbers and the lowing of the CPI (cause of gas prices). Some argue that the better-than-expected series of monthly retail sales data is more a function of the “Circuit City effect” – a one-time event where consumers run out to buy items at sharply discounted prices from stores going out of business. Other analysts (one being a good friend of mine) are concerned that the impact of temporary factors like tax rebate and fiscal stimulus checks has created a false picture of activity in the retail sector. I happen to disagree and leaning toward the prior analysis.

Mortgage investors will look to Wednesday’s April Retail Sales report to help sort things out. A report that matches or exceeds the consensus estimate will be viewed as an indication that the recent bounce in consumer confidence may be sustainable – a view that will tend to be mortgage interest rate unfriendly. A round of weaker-than-expected sales numbers will likely create a chill in the stock markets – sending stock prices lower to the direct benefit of steady to perhaps fractionally lower mortgage interest rates.

Economic Calendar
Release Date & Time
Economic Indicator
Consensus Estimate
My Analysis

Mon. May 11, before the end of the day
The Fed will be conducting the first of a three-day outright purchase of Treasury obligations. This event proved to be highly positive for lower mortgage interest rates.

Tue. May 12, before the end of the day
This is the second-day of a three-day Treasury purchase operation by the Fed. Normally I would suggest this event prove to be at least a slight positive for the prospect of steady to perhaps fractionally lower mortgage interest rates. But given yesterday's massive rally, I am a little more hesitant to call anything higher.


Wed. May 13, 8:30 a.m. ET
Apr. Retail Sales
Ex. Auto
0.0% vs. last -1.2%
+0.2% vs. last -0.9%
If the actual numbers match or exceed the consensus estimate this report will tend to be mortgage interest rate unfriendly. In the unlikely event that either of the two components of this report proves to be weaker than expected -- look for equities and interest driven vehicles to creep fractionally lower.

Wed. May 13, 8:30 a.m. ET
Mar. Business Inventories
-1.0% vs. last -1.3%
This old stale bit of macro-economic news will likely do nothing more than take up space on this week’s calendar.

Wed. May 13, before the end of the day
The Fed will make one more foray into the credit markets as they wrap up a three-day operation of direct purchases of Treasury obligations (part of their $300 billion effort keep the lid on consumer and business interest rates).

Thurs. May 14, 8:30 a.m. ET
Initial jobless claims for the week ended 5/9
Up 9,000
The census around first-time jobless benefit claims are expected to post a very small increase. Should this be accurate, look for this data to have little, if any meaningful impact on the fixed income market today.


Thurs. May 14, 8:30 a.m. ET
Apr. Producer Price Index
Core Rate
+0.1% vs. last -1.2%
+0.1% vs. last 0.0%
The modest expected rise in the headline producer price index will not likely create much concern among investors. More importantly the core rate, a value excluding the volatile food and energy components, likely remained extremely low.

Fri. May 15, 8:30 a.m. ET
Apr. Consumer Price Index
Core Rate
-0.1% vs. last -0.1%
+0.1% vs. last +0.2%
Given the much larger issues in the market, this data will likely exert little, if any influence on the direction of mortgage interest rates today. Gasoline prices slumped in March resulting in a drop in headline consumer inflation. Excluding the volatile food and energy components, core inflation at the consumer level remained near multi-month lows.


Fri. May 15, 9:15 p.m. ET
Apr. Industrial Production &
Capacity Utilization
-0.6% vs. last -1.5%
68.8 vs. last 69.3
The continued massive decline in the manufacturing sector is expected to have unabated during the month of April. This data will likely have little, if any influence on the direction of market interest rates today.

Have a productive week.