Weak Open

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ADVICE:  For loans being locked for 15 - 30 days, we suggest…(more) Interest rate markets started a little better this morning with stock index trading pointing to a weak open at 9:30. At 8:30 April personal income and spending; income was generally expected  to be +0.1%, as released income was unchanged frm March. Personal spending, expected unchanged frm March declined 0.2%. Not good numbers for the bullish economic outlook but not a wash out either. There wasn’t much reaction to the weaker data in either stock indexes or the bond market. Consumer spending accounts for 70% of economic growth, March spending was originally reported +0.2%, in today’s data it was revised to +0.1%. The April decline in spending was the first decline since May 2012. The price index tied to spending, the gauge tracked by Federal Reserve policy makers, fell 0.3% in April, the biggest drop since December 2008, as fuel costs retreated. The so-called core price measure, which excludes food and fuel, was unchanged from the prior month and was up 1.1% from April 2012, matching a record low and confirming inflation is well under the Fed’s preferred target of +2.0%. Adjusting consumer spending for inflation, which renders the figures used to calculate gross domestic product, real purchases rose 0.1%, the smallest advance since October, after a 0.2% increase in the previous month. At 9:30 the DJIA opened -46, NASDAQ -15, S&P -5; 10 yr 2.10% +1 bp, 30 yr Fannies +8 bps and 30 yr Ginnies +18 bps. At 9:45 the May Chicago purchasing managers’ index was expected at 50.0 frm 49.0 in April; it exploded to 58.7, the largest monthly increase since March 2012. The index clearly above 50 the level that defines expansion and contraction. The reaction turned the stock market around quickly, from -54 earlier at 9:50 -6. The 10 yr jumped to 2.13% frm 2.10% and 30 yr MBS prices down 18 bp on the session and down 26 bp frm 9:30. At 9:55 the U. of Michigan consumer sentiment index, expected at 83.7 the index leaped to 84.5 the highest reading since July 2007. The bond and mortgage markets tried to improve early but the Chicago index and the U. of Michigan sentiment index turned the 10 back to 2.15% and weakened the mortgage markets. The bond bear got more meat to chew and took any near term optimism away. The technicals are still bearish; regardless of the debate over what the Fed will do as long as any data on the economy is better than forecasts there is very little chance of any significant improvement in interest rates. By 10:00 the 10 yr note was 2.16% from 209% earlier this morning before the strong economic reports. More fuel for the view the Fed may begin exiting QE. One key issue these days is what should the interest rates be based on the data and inflation (the lack of it)? With central banks around the world led by the Fed manipulating interest rates the last 2 yrs there is really no way to determine where the level of rates should actually be. That said, don’t fight the reality of the present condition, unrelentingly bearish. The MBS prices below are at 9:30; at 10:15 the 30 yr price -50 bp frm yesterday’s close and 58 bps lower than at 9:30. 10 yr at 10:15 2.17% +8 bp