Slow Start in the Market

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It was another quiet start this morning with no news again today. This week has been almost completely void of any market moving news. The 10 yr note this morning early was at 1.79% up another basis point, while mortgage prices started unchanged; MBS prices were flat yesterday. Prior to the 9:30 open of the stock market the key indexes were a little weaker. At 9:30 the DJIA opened -20, NASDAQ -4, S&P -2; the 10 yr note after trading earlier at 1.79% was at 1.77%, 30 yr mortgage prices +9 bps frm yesterday’s close. European stocks advanced for a second day and metals rose as China’s trade and German industrial output beat estimates after yesterday’s gains in factory orders. A report out of China showed exports increased 14.7%, the general consensus was an increase of 9.0%. Another central bank cut rates today; Poland the EUs largest eastern economy, struggling with declining growth, cut its seven day bench rate from 3.25% to 3.0%. The ECB cut rates last week, Hungry cut its rate for the ninth time, and Australia also cut its rate yesterday. Almost every central bank now if mimicking the Fed as there has been little improvement throughout the world. Central banks are the prime drivers pushing global equity markets higher; simply stated, there isn’t any other way to earn a decent return. Meanwhile, here in the US, we still have not seen any major report on the economy beating forecasts---except the April employment report and the higher revisions for Feb and March. Mortgage applications increased 7.0% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 3, 2013. The Refinance Index increased 8% from the previous week to the highest level since December 2012.  The seasonally adjusted Purchase Index increased 2% from one week earlier to the highest level since May 2010. The unadjusted Purchase was 12% higher than the same week one year ago. The refinance share of mortgage activity increased to 76% of total applications from 75% the previous week to the highest level since February 2013. The HARP share of refinance applications fell from 34% last week to 30% this week. The government share of purchase applications declined to 29.1%, which is a two year low. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.59%, the lowest rate since December 2012, from 3.60%, with points increasing to 0.33 from  0.30 (including the origination fee) for 80% loans.  The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 3.79% from 3.80%, with points decreasing to 0.20 from 0.29 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.35% from 3.34%, with points increasing to 0.57 from 0.37 (including the origination fee) for 80% loans.  The average contract interest rate for 15-year fixed-rate mortgages decreased to 2.81%, the lowest rate in the history of the survey, from 2.84%, with points increasing to 0.29 from 0.26 (including the origination fee) for 80% loans. At 1:00 this afternoon Treasury will auction $24B of 10 yr notes; demand will be a concern as recent auctions of 10s haven’t met with strong demand. This one may be better due to the recent increase in rates. Since the strong selling last Friday the MBS markets have been essentially unchanged, the 10 yr yield up 2 bps in rate since Friday’s close. The run-up in rates due to the better employment report may be a little overdone in the near term, but as long as the US and global equity markets continue to advance with no big declines any improvement in interest rates isn’t likely to drive rates back to levels seen last week before April employment. Technicals on the 10 are now bearish near term; the note yield trading above its 20 and 40 day averages, stochastics, relative strength and the moving average convergence/divergence index all bearish. Keep tuned and use any improvement in rates to lock in deals. The rest of this month the various economic measurements will likely generate increased volatility pending how they compare to economists’ forecasts and estimates.