Interest rates increase

http://globalhomefinance.com

ADVICE:  For loans being locked for 15 - 30 days, we suggest…(more) Very early this morning the 10 yr traded at 2.17%, by 9:00 the note was unchanged from last Friday. The US stock market took a hit last Friday, the DJIA -208 points, this morning in pre-pen trading the DJIA +75. This week has been anticipated for two weeks, it is employment week. The drive higher in interest rates was set in motion in early May when the April employment report was much stronger than all the forecasts. Was the April report an aberration, or the beginning of stronger employment conditions, Friday should clear the air a little. Interest rates continue to increase as the momentum builds that the Fed will begin tapering its QEs sooner than what had been thought as little as three weeks ago. The US 10 in May increased frm 1.63% to 2.16% last Friday and 30 yr MBSs increased 30 basis points in rate during the month. Much of the April and May data that has been released so far has been a little stronger than forecasts. German bunds fell, with 10-year yields rising to the most in three months (presently 1.55%), after Federal Reserve Bank of San Francisco President John Williams said the U.S. asset-purchase stimulus program might end this year. Williams is not a voting member at the FOMC told reports the Fed may start tapering this summer and end its easing’s by the end of the year. Yet another Fed official with his thoughts; if he is correct the speed of the Fed’s withdrawal would be swifter than markets presently believe. The Fed has two mandates; keep unemployment low and guard against inflation; inflation is lower than the Fed’s 2.0% target (1.5%) and the employment sector is still soft, although improving----at least based on the April data released last month. Forecasting with any degree of accuracy the employment report is more a dart throw, generally the report deviates in wide ranges compared to the consensus estimates that this morning call for non-farm jobs in May increasing 167K and private jobs +178K; it is a high probability the actual data will be substantially different. A gauge of manufacturing in the 17-nation euro area increased to 48.3 last month from 46.7 in April, London-based Markit Economics said today. That’s above an initial estimate of 47.8 on May 23. The gauge has been below 50, indicating contraction, since July 2011. In the U.K., a separate report by Markit and the Chartered Institute of Purchasing and Supply showed a factory index climbed to a 14-month high of 51.3 from a revised 50.2 in April.  The European data today followed euro-zone industrial confidence and trade data released last month that showed the region is on a path to recovery. The US manufacturing was reported at 10:00 this morning (see below). At 9:30 the DJIA opened +52, NASDAQ +3, S&P +2; 10 yr unchanged at 2.16% but MBS prices continue to fall, down 31 bp frm Friday’s close. While Friday’s employment report is the most important this week, there are a number of other key data points to work through until then. At 10:00 this morning the May ISM manufacturing index was expected at 51.0 frm 50.7, the index was weaker at 49.0 the lowest since last Nov; last week the regional Chicago index was much stronger than thought but this national number confirms manufacturing is still struggling. The new orders component in the report at 48.8 frm 52.3 in April, under 50 is contraction. The employment component also dropped to 50.1 frm 50.7. The report no matter how it is viewed was very weak. Also at 10:00 April construction spending was thought to be up 1.0% increased just 0.4%. The two reports turned mortgage prices frm -29 bp to +14 bps. The 10 yr note yield fell frm 2.16% to 2.11% on the reaction to the weak reports.