Market Snapshot 2/23/2012

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ADVICE:  For loans being locked for 15 - 30 days, we suggest…(more) Prior to weekly jobless claims at 8:30 the 10 yr note was trading -7/32 at 2.04% and mortgage prices were off 5/32 (.15 bp).  Weekly claims were expected to be up 7K to 355K; as reported claims were unchanged from last week, last week’s claims were revised from 348K to 3.51K. Continuing claims declined 52K to 3.392 mil. The response in the bond market took the 10 yr down from -7/32 to -12/32 the yield increased to 2.04%. Stock index futures increased a little on the claims, from +15 to +20 on the DJIA. Claims at a four year low, going back to August 2008. Yesterday Europe’s stock markets declined on weaker than expected manufacturing and services data. Today German business confidence rose more than economists forecast to a seven-month high in February as progress in taming Europe’s debt crisis tempered the risk of a recession. Italian consumer confidence also rose more than forecast. That Greece is going to get the money to avoid default has some believing Europe will not fall back into recession, but the EU is now saying Spain and Italy will both fall back into recession as the two countries work on more austerity plans to fend off their own debt crises. Why focus on Europe so much? Because Europe these days is integral to global growth while it teeters on the edge of breaking up and a cascade of sovereign debt defaults. US equity markets start each day on how Europe’s markets are trading. According to the European Commission the euro economy will contract 0.3% in 2012, abandoning a November forecast of 0.5% growth. The downgrade was mainly due to projected contractions of 1.3% in Italy and 1.0% in Spain. At 9:00 this morning, after a soft opening in the mortgage markets, the 30 yr FNMA coupon managed to climb back to unchanged while the 10 still weaker, was slightly better than at 8:30. Treasury rates are still confined in narrow ranges, most all of the technical models remain a little bearish, not getting worse but not improving either. The Fed’s desire to keep short rates low for many more months caps the long end of the curve keeping the 10 yr note and mortgage rates from increasing. Although an increasingly bullish economic outlook prevails now, the future of the economy remains questionable even with the most optimistic investors. At 9:30 the equity markets were expected to open better but it didn’t occur; the DJIA opened -24, the 10 yr note at 9:30 -3/32 at 2.02% while MBS prices +2/32 (.06 bp). At 10:00 the Dec FHFA housing price index was expected up 0.2%; as reported prices increased 0.7%; yr/yr prices down 0.8%. The report stabilized stock indexes and pushed treasury prices down 2/32---not much initial reaction. Crude oil is fractionally lower today, Iran’s refusal to allow the International Atomic Energy Agency into two sites where there is speculation the country is working on nukes adds to the fear factor that supplies will be impaired. The Saudis are saying the world has ample supplies at the moment, that hasn’t mattered to oil speculator though as prices continue to increase. The momentary consensus is that gasoline prices will move above $4.00/gal as Spring approaches, obviously that will take discretionary spending lower. At 1:00 this afternoon Treasury will conclude this week’s borrowing with $29B of 7 yr notes. Yesterday’s 5 yr auction was in line with demand over the past 12 months, not quite as strong as traders were expecting. Strong demand this afternoon will bolster the rate markets. Two days ago the DJIA failed at 13K, yesterday the index closed a little weaker (-27), this morning the index opened -24 and has continued lower into 10:00. Interest rates a little higher early but now with stocks falling the 10 yr is once again working on 2.00%, a level that continues to give traders pause. We don’t expect much lower rates, nor do we expect interest rates to increase much. At around 2.00% for the 10 yr is a recent comfort level, to work much lower the economic outlook has to change from present optimism to a more pessimistic view.

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