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Yesterday there was little change in the bond and mortgage markets; the stock indexes were weaker but volume was thin. Yesterday the April Philly Fed business index and March leading economic indicators were two more data points that were weaker than expected. The Philly Fed index of business activity revealed there is no improvement in the business sector in the NE. Leading economic indicators were expected to be +0.2%, the LEI fell 0.1%. The soft data continues to be the prevalent case for most data recently. Nevertheless the stock market so far has held well and the bond market has held its recent rallies. Even on days when the stock market experiences selling the 10 yr note has not demonstrated much improvement. There are no scheduled economic releases today. US financial markets little changed this morning ahead of the 9:30 open in the stock market. Prior to the open the 10 yr note slightly weaker in price but essentially unchanged while 30 yr MBS prices also about unchanged. At 9:30 the DJIA opened -45, NASDAQ +8, S&P +4; 10 yr note a 1.71% +2 bp, 30 yr MBS price unchanged. Not much news today from Europe; the key stock markets in the region are better. Most of the coverage this morning has been about the Boston bombers; one dead, the other being hunted. Citizens told to stay inside, about a million people have been told to stay put, in homes of offices. So far the horrific bombing hasn’t filtered into the stock or bond markets. The bellwether 10 yr note is still unable to break below 1.69% on a closing basis, equally the note hasn’t shown much negativity as the yield on the note remains within a six basis point range (1.75% to 1.69%) over the last nine trading days. Conventional wisdom is that when (if) the stock market began to experience selling that the US interest rates would fall, so far neither has occurred. The stock market has been more volatile with huge swings in both directions but not much decline so far. The fear of inflation, more imagined than real, may be keeping the 10 yr falling more; however inflation is a dead soldier these days. US annual inflation is below the Fed’s 2.0% target (+1.5%) and has a few Fed officials now talking about more easing to boost the rate back to 2.0%. China’s economic slowdown also suggests no inflation, Europe’s inflation rate is declining. This morning Canada reported its inflation rate slowed to the bottom of the central bank’s target range last month as gasoline prices dropped. The consumer price index rose 1% in March from a year ago following a 1.2% gain the prior month, Statistics Canada said. The core rate, which excludes eight volatile products, was unchanged at 1.4%. The Bank of Canada said April 17 inflation will remain below policy makers’ 2% target until the second quarter of 2015 as slower growth creates more slack. Fears of inflation have eroded, eliminating one impediment for lower long term rates. No inflation, weakening economic data, a mixed picture on Q1 earnings reports, and an increasing number of economists saying Q2 growth may slow. The job markets very soft (ignore the decline in the unemployment rate). China’s economy the weakest in 13 years, Europe about to re-enter recession. All of this has yet to seriously impact US stock indexes and the bond and mortgage markets. Technically though stocks, bonds and MBSs still hold bullish biases; the 10 has room to increase to 1.75% and still hold positive, 30 yr Fannie Mae 3.0 coupon price has stalled the last five sessions but is still above its 100 and 200 day averages. Technicals look OK, but are increasingly more vulnerable.

Bad Day for the Market

Prior to 8:30 the 10 yr note was back above 1.70% to 1.71% +1 bp frm yesterday’s close. The stock market had a bad day yesterday, this morning the indexes started better. At 8:30 weekly jobless claims were expected about unchanged, as reported claims increased 4K to 352K; close enough to estimates and little initial reaction to the data. Two states, Kentucky and California, were estimated by the Labor Dept. The steady claims this morning have increased chatter that the labor market is stabilizing; quite a stretch after the March employment report showed very little increase in jobs and the past three weeks of volatile swings in weekly claims. The four-week moving average, a less volatile measure than the weekly figures, rose to 361,250 last week from 358,500. Claims figures jumped in late March and then retreated as the government had difficulty adjusting claims for the Easter and school spring break holidays that occurred a little earlier than usual this year. At 9:30 the DJIA opened +4, NASDAQ +7, S&P +2; the 10 yr at 1.70% and 30 yr MBSs +3 bps. The open was weaker than in pre-open trading earlier this morning. Over the pond in Germany; German lawmakers approved a rescue for Cyprus as Finance Minister Wolfgang Schaeuble warned that refusing aid to a fifth crisis-ravaged state risked triggering a sovereign default and contagion to other euro nations. “We must avoid turning the problems in Cyprus into new problems for other euro countries,” Schaeuble told lawmakers in a speech before the vote. “Cyprus is in a dramatic situation. If we don’t help Cyprus, then Cyprus inevitably faces sovereign default.” Germany also approved extending aid terms for Ireland and Portugal. So far Germany has committed 211B euros to keep the currency union together. Two key reports at 10:00; the April Philadelphia Fed business index and March leading economic indicators. The Philly Fed index was expected at 3.3 frm 2.0, as reported the index was up just 1.3%. No matter how we look at it the index is extremely weak even though still holding above zero. March leading economic indicators, another soft report; expected up 0.2%, the index fell to -0.1% after increasing 0.5% in February. How much more weaker than thought data will it take to drive investors to selling equities? Much of the data for March has been weaker than forecasts yet equity markets, although not rallying stocks are not falling much either. The 10 yr note at 1.69% after the 10:00 data still stalled. The 10 yr note, driver for mortgage rates, has stalled at 1.70% levels; unable to break through on a closing basis. Yesterday at mid-day the note yield dropped to 1.67% but was unable to hold it and closed at 1.70%. Technically everything continues to point to lower rates but until there is a stronger belief that the stock market is actually going to decline rates won’t likely fall from present levels. Recent activity in the US and global equity markets is suggesting that a correction in stocks is at hand. That said, numerous times in the past couple of months it looked like stocks would back off only to drive higher almost daily.

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Volatile Stock

Stock market volatility continues at high levels. This morning the US stock indexes were weaker early after a nice rebound yesterday that followed a huge 266 point decline for the DJIA on Monday. Today there isn’t any economic data to look at, this afternoon the Fed will release its Beige Book, details from all 12 districts. Europe’s stock market were weaker again this morning; the fourth day the markets have fallen. Talk the Germany’s credit rating may be downgraded increased trading volatility in the country as well as through the EU countries. Investors increasingly more concerned that Germany’s economy is slowing, driven lower as the rest of the EU has shown very little growth. Credit downgrade rumors, the fall in gold and surprisingly weak China Q1 GDP are collectively increasing the uncertainty in equity markets. As we noted Monday volatility in global markets will increase as investors consider the validity of the current stock market rally. The volume of shares changing hands in Stoxx 600 companies was 3.6% greater than the average of the last 30 days. U.K. unemployment rose at its fastest pace in more than a year and wage increases slowed. Unemployment as measured by International Labor Organization methods rose by 70,000 to 2.56 million in the three months through February, the most since November 2011, the Office for National Statistics said today in London. A separate release showed that Bank of England Governor Mervyn King was defeated for a third month in a push for more stimulus. Here in the US the Fed is openly talking about the end of its QE; no time frame and likely not anything immediate, now the UK has rejected an increase in stimulus. The weekly MBA mortgage applications released at 7:00 am this morning. Mortgage applications increased 4.8% from one week earlier. The Refinance Index increased 5% from the previous week and is at its highest level since mid-January of 2013.  The seasonally adjusted Purchase Index increased 4% from one week earlier is at its highest level since May of 2010 and the adjusted Conventional Purchase Index increased 3% to the highest level since October 2009. The unadjusted Purchase Index increased 5% compared with the previous week and was 20% higher than the same week one year ago. The refinance share of mortgage activity was unchanged at 75% of total applications from the previous week. The adjustable-rate mortgage (ARM) share of activity was unchanged at 5% of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.67% from 3.68%, with points increasing to 0.50 from  0.43 (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 3.77% from 3.79%, with points decreasing to 0.27 from 0.36 (including the origination fee) for 80% loans.  At 9:30 the DJIA opened -40, NASDAQ -28, S&P -7. At 9:30 the 10 yr note at 1.72% -1 bp and 30 yr MBSs -3 bp frm yesterday’s close. Is the 10 yr note losing some of its safety haven characteristics? In the last seven trading sessions, a week and a half, the 10 has found strong support at 1.70% and has equally found resistance at 1.75%. Five basis points and finding no momentum to crack 1.70% levels. During that time the DJIA has had swings from -266 on Monday and +157 yesterday. China’s economy slowing, Europe’s economies faltering, gold falling and still investors and traders appear to be reluctant to move into treasuries. With weakening economic outlooks from increasing numbers of economists the Fed is not likely to begin lessening its monthly purchases of treasuries and mortgages anytime soon---at least until the end of the year; nevertheless interest rates are holding firm. Technically, everything remains positive but unless the 10 breaks 1.70% soon interest rates may increase.

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Rates Drop

Yesterday the stock indexes fell; the DJIA -266 and NASDAQ -78. Some of the selling was a reaction to the Boston bombing, however that didn’t happen until 3:00. Prior to the shock the stock market was under strong selling pressure, frm the time the bombs exploded the DJIA was down over 170 points. The 10 yr note fell to 1.69%, down 4 bp and 30 yr MBSs +16 bps. This morning at 8:30 the US stock indexes trading in the futures markets were suggesting the DJIA would open up 120 points higher. No follow-through this morning; looking for the correction in stocks is about as rewarding as trying to find the proverbial needle. Yesterday it was about the decline in growth in China on the weaker than expected Q1 GDP, the Empire State manufacturing data softer than expected, and the April NAHB housing market index that was thought to have increased from March but fell 2 points to 42 frm 44 (50 is the divide between positive and weaker). The fall in the indexes yesterday was the biggest decline in five months. This morning at 8:30 March CPI was down 0.2% overall; the core (ex food and energy) up 0.1%; estimates were for the index were unchanged overall and +0.2% on the core. Inflation is always a talking point but these days, and for the last three years inflation is completely absent; in fact the new concern is possible deflation resulting from China’s slowdown. Since the Fed began the QEs three years ago there have been fears it would trigger inflation but a still sluggish global economy has kept prices frm increasing. Yr/yr overall CPI +1.5%, core yr/yr +1.94%. The more critical data at 8:30; March housing starts and permits. Starts were estimated up 1.4%, starts jumped 7.0% to 1.036 mil units, the gain mostly in multi-family starts that were the strongest in seven years, estimates were for starts at 930K units (annualized). Building permits a little concerning though, permits dropped 3.9% against estimates of  a decline of 0.5%. At 9:15 March industrial production was expected +0.2%; it doubled to 0.4% and Feb production, originally +0.7% was revised to +1.1%. March capacity utilization (factory use) was expected at 78.3% unchanged from Feb, use increased slightly to 78.5%. At 9:30 the DJIA opened +100, NASDAQ +24, S&P +10. The 10 yr note 1.73% +4 bp and 30 year MBSs -16 bp frm yesterday’s close. The IMF out today lowering its outlook for global growth frm +3.5% in January to +3.3% now. IMF urged European policy makers to use “aggressive” monetary policy as a second year of contraction leaves the euro area’s recovery lagging behind the rest of the world. The IMF report describes a “three-speed” recovery led by emerging markets including China, with the U.S. forging ahead and Europe trailing after fighting a debt crisis that has forced bailouts of five countries in the region. Beside the stock market volatility yesterday, gold was beat down hard, -$160 by 5:00 pm and last Friday down $78.00; increased views that inflation isn’t likely to increase and the sell recommendation last week from Goldman/Sachs has driven the price from $1570 four weeks ago to the $1350 level yesterday. This morning gold up $33.00. Crude oil also saw strong selling yesterday, down $3.00 to $88.50 at 4:00 yesterday; the price is higher today. Yesterday’s trading in stocks, gold and oil started the week with an increase in volatility, this morning it is evident with the markets that were hit hard yesterday are snapping back with reversals in the markets. No additional economic data today but there are three Fed officials scheduled to speak; Elizabeth Duke at 12:00 pm, Narayana Kocherlakota at 1:00 and at 3:00 Janet Yellen, the vice chair of the Fed. Technically, the 10 yr note failed yesterday to move below 1.69%, the third time in four days that buying ended when the yield fell to 1.69%. A little concerning that the 10 could not garner buying yesterday with stocks collapsing, gold falling and crude lower. Even the increased concerns the economies of the world are slowing hasn’t pushed the yield lower. All of our models still remain bullish; the rest of this week though will likely be more volatile after yesterday’s market actions.   Globalhomefinance.com  Let us help you with your home loan needs.

Mortgage Rates

The day started with better prices for mortgages and the 10 yr note yield at 1.70% at one point about 8:15. Global stock markets weaker this morning on weaker than expected growth in China; the key GDP index rose 7.7% in the first quarter, the National Bureau of Statistics said in Beijing. That compared with the 8% median forecast by analysts and the 7.9% pace in Q4 2012. At 8:30 in the US, the NY Empire State manufacturing index also weaker than forecasts; the index at 3.1 frm 9.2 in March was expected at 7.5. Beside the weaker economic data early this morning that has supported interest rate markets; Fed officials out denying the Fed is ready to end the QE. Charles Evens Chicago Fed President said the Fed’s monetary policy isn’t accommodative enough. Narayana Kocherlakota, Minneapolis Fed President said he would like to see more accommodative polices. Dennis Lockhart, Atlanta Fed President he supports more easing. The three spoke on Saturday. This week has a number of Fed officials speaking; Fed Governor Elizabeth Duke at 12:30 Tuesday,  Narayana Kocherlakota at 1:00 Tuesday, Janet Yellen Vice Chair at the Fed at 3:00 Tuesday. On Wednesday at 9:00 am Jeremy Stein, Fed governor, at 9:30 St Louis Fed Pres. Bullard and Eric Rosengren, Boston Feb President at 12:00 pm. The discussions about the QE continues with varying comments frm numerous Fed officials, pro and con. At 9:30 this morning the DJIA opened -34, NASDAQ -17 and S&P -5; the 10 yr note at 1.71% -2 bp, 30 yr MBSs +6 bps. At 10:00 the April NAHB housing market index was expected at 45 frm 44 in March; as reported the index dropped again, the second drop in the last two months to 42. The pivot between gains and weakness is 50. Very disappointing, especially when most have begun to believe the housing sector would pull the economy upward. Tomorrow March housing starts and permits are on the schedule.   Gold is collapsing again this morning; Friday selling dropped the metal $77.00, this morning early gold was off over $100.00, at 10:00 down another $90.00. Investors are being forced out of long positions as the exchange will likely increase margin rates. Deflationary fears frm China, last week’s outright sell recommendation frm Goldman/Sachs and talk that Cyprus will begin selling its gold reserves are joining to drop gold that traded at $1570 a few days ago now at $1412.00, (-$170.00 since last Thursday’s close). And not only gold falling, crude oil is down $2.00 this morning and down $9.00/barrel in the last two weeks. The recent drop in the rate on the 10 yr note, frm 1.90% on the first of April to 1.70%, is working on the low this morning. The stock market is under pressure so far today, but we don’t put much emphasis on it until later this afternoon. These days it is more the norm than unusual that movement in the key indexes have a pattern of weakness through the day but recovering in the final hour. At 10:00 today the 10 yr, after being down 2 bps in yield earlier, is trading unchanged frm Friday at 1.73% with MBS prices about unchanged frm Friday.

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Bond and Mortgage Market

Globalhomefinance.com find the help and experience you need and get a friendly informed loan officer to make the experience stress and worry free. A nice start today in the bond and mortgage markets with US stock indexes trading lower and Europe’s stock markets weaker. At 8:30 more support for the bond market when March retail sales were much softer than forecasts; sales were expected to be about unchanged from Feb but fell 0.4% and when auto sales are extracted sales still down 0.4%. Sales fell by the most in nine months as employment slowed, showing households ended the first quarter on softer footing. Feb sales originally reported up 1.1% was revised to +1.0%. The weak sales in March add additional concern that the spending cuts and the increase in payroll taxes this year are having more of a negative impact on the economy than economists had forecast. The 8:30 report pushed stock index futures lower and increased the price gains on mortgage prices. Also at 8:30 March producer price index was expected -0.2%, as reported PPI declined 0.6% and when food and energy components were excluded PPI increased 0.2% as expected. Yr/yr PPI +1.1%, ex food and energy yr/yr up 1.7%. Inflation is not a factor these days, well below the levels that would concern the markets or the Fed. The 0.6% drop in the producer price index was the biggest since May and followed a 0.7% gain in the prior month. The cost of energy slumped by the most in three years according to data frm he Labor Dept. At 9:30 the DJIA opened -42, NASDAQ -10, S&P -5. The 10 yr note at 9:30 at 1.74% -5 bp with 30 yr MBS prices +22 bps. At 9:55 the mid-month U. of Michigan consumer sentiment index was expected at 79.0 frm 78.6 at the end of March. The index plunged to 72.3 the lowest index reading since Dec 2011. One more measurement that confirms that consumers are not as euphoric about their economic lives as the equity markets are about their pocketbooks. Once again a weak report didn’t faze the stock market; the three key indexes lower but no noticeable reaction to the decline in sentiment. The final data point this morning, at 10:00 Feb business inventories were expected to have increased 0.4% after increasing 1.0% in January. Inventories increased just 0.1% and Jan revised down to +0.9%. The inventory miss will take away some frm Q1 GDP when it is reported on the 26th. Fed chief Bernanke is on the calendar to speak at 12:30 at a community development conference in Washington. Always important when the Fed head talks, these days even more so with the question about the ending of the QEs hanging out there in the wind. There is no direct reason he will have anything to say, but in the Q&A anything is likely to come up, markets are not concerned with it though. The data this morning is constructive toward the view that the Fed will continue its easing policy for longer than some may have thought yesterday. The economy is clearly not expanding as rapidly as most thought at the beginning of this year. Unless there is a marked reversal in the speed of growth the Fed will not stop now after three years of support with easy monetary policy. Recently released data on employment and now confirmed weakness in retail sales should be lessening the bullish outlook for growth. March saw just 88K new jobs as businesses face uncertainty over the sequester cuts in spending and the realization that health care costs will increase as ObamaCare begin to be implemented. Whether there is anything these days that will set a decline in equity markets is questionable; so far nothing has fazed investors as stock prices continue to climb. Corporate profits are holding well for the most part, driving the market higher and higher in one of the strongest and long-running stock market rally in years. Businesses are getting more from present employees and refrain from hiring, the result is consumers are still being pressured and reluctant to increase spending. What will it take to set off a strong correctional rally in the equity market? So far with the Fed continuing to force investors into stocks, and the global view that the US is the best place to invest are countering the reality that consumers are not spending much and employment not improving much.

Where is the Stimulation

We love to help with home loans, let us make your loan process easier at globalhomefinance.com Weekly jobless claims out this morning at 8:30; claims were widely expected to have declined 20K to 25K, as reported claims fell 42K to 346K. Last week claims increased 28K, more than was expected at the time. The last two weeks of claims appear to have been to smooth out swings due to the Easter holiday that falls at different times each month. Nevertheless the claims recently have exhibited an increase in volatility. Mix in the March employment report that was exceptionally soft on job creation (+88K) and markets are left scratching heads as to the reality of the employment data recently. The reaction in the markets to the better claims was almost nil; stock indexes little changed and the 10 yr note a little better. March import prices were reported -0.5%, export prices -0.4%; yr/yr import prices own 2.7% while yr/yr export prices +0.3%. Not much direct interest in the monthly report frm traders but the data shows imports falling primarily on lower oil prices and a stronger dollar. At 9:30 the DJIA opened unchanged from yesterday, NASDAQ -7, S&P unchanged. The 10 yr note at 1.80% also unchanged frm yesterday. 30 yr MBS price at 9:30 +11 bp after falling 30 bps yesterday. So far today markets are very still with little movement in equity markets and not much change in the bond and mortgage markets. This week has been absent of key economic releases, mostly reacting to the never-ending rise in US stock indexes. Tomorrow there will be a couple of data points that should get attention; March retail sales and the U. of Michigan consumer sentiment index. March PPI and Feb business inventories also out but there is no inflation so it isn’t likely to move markets and business inventories normally don’t get attention except for deep-thinking economists. March retail sales are expected about unchanged from Feb sales that were up 1.1%. Yesterday’s FOMC minutes indicated an increasing dialogue within the group about how and when to begin ending the $85B a month of buying of treasuries and MBSs. Some discussion ensued about the future effectiveness of Fed money printing; so far not much improvement in employment after three years of Fed purchases that have ballooned its balance sheet to about $4 trillion by the end of this year. The meeting occurred before the March employment report that showed non-farm job growth at an anemic 88K. It isn’t likely the Fed will stop the low interest rate bias anytime soon unless there is a marked improvement in job growth. Keeping businesses frm increasing hiring; the ObamaCare bill and spending cuts frm the sequester. Although the spending cuts are just $85B this year in a $3.0+ trillion budget, most of the cuts are where they hurt the most. The most recent survey of banks and securities firms holds that most are now expecting the 10 yr note at 2.25% at the end of the year, down from 2.32% that was thought in February. Yesterday Bill Gross at PIMCO out saying the largest bond fund in the world is upping its purchases of US treasuries and lessening by the same amount purchases of MBSs. Technically the bond and mortgage markets are holding positive outlooks, but the near term may see some consolidation or slight increases in rates. The last five sessions have seen the 10 yr note yield increase 10 basis points, mostly on overbought momentum oscillators and continued advances in US stock indexes.