Mortgage Mike’s Daily Rate Commentary

Stocks are relatively quiet at the open today.  The only news scheduled for release was the Empire Manufacturing Index, and it came in at its lowest level in almost 3 /12 years.  There seemed to be more excitement from consumers as the Iphone 5’s debut, setting a record of 2 million sales in just 24 hours.  It was also said that the Iphone alone could help GDP by .5%.  Mortgage bonds are higher this morning as investors are concerned about anti American tensions spreading to more countries, as well as the Israel/ Iran conflict.  Oil prices are close to $100 a barrel as any type of outbreak could quickly get out of hand and cause oil to spike quickly.  We will advise locking in at these all time low rates.

Just as we have been predicting for months, the Fed finally announced another round of “Quantitative Easing”.  Virtually everything went higher yesterday after the announcement by Ben Bernanke.  Stocks are continuing the move higher this morning, but mortgage bonds and the U.S. dollar are both lower after investors have had some time to interpret what the effects of the Fed move actually means.  The Chairman cited information that implied a “grave” outlook for the economy, but Consumer Sentiment came out at a 4 month high this morning.  Ultimately, stock investors see the Fed available to prop up markets for as long as necessary, but that will obviously have other consequences down the road.  mortgage bonds have pulled back today and it’s likely that lenders will be tight with any improvements.  mortgage rare improvements will be further capped with the recent “tax” that the FHFA will add to every closed mortgage beginning very soon.  The improvement results in great interest rates for now, but still a struggle to move lower so we will advise a locking bias.

 

Markets are all in a holding pattern as investors wait to see what Ben Bernanke has to say at 12:30 ET today.  It appears to be a foregone conclusion with investors that QE3 will be delivered.  However, the question is in what form and how much?  Interest rates are at historic lows, the S&P 500 is only 8% below its all time highs, but the economy remains stagnant and unemployment remains high.  One can argue how much worse things could be had there not been any stimulus, but the effectiveness of more money has many investors thinking it simply will not help.  Mortgage bonds are up slightly for the moment, but are sure to move within the next few hours when the announcement is made.  We will be on standby to lock today.

German courts ruled in favor of ratifying the European Stability Mechanism (ESM) which has funds of approximately $905 billion Euros to combat the financial crisis.  This moves Mario Draghi of the ECB one step closer to implementing the short term bond buying of fledging countries debt.  While it may provide temporary relief, many investors see it as just that and not a solution to the longer term consequences.  The strategy sounds all too similar to the U.S. quantitative easing, with the exception that Europe is bound together by currency alone and not law.  They are faced with going through what our early colonies had to endure in order to become “united”, but our colonies did not have the obvious baggage of inheriting billions of  other countries debt.  Back here at home, there’s more excitement about the new iphone being released today.  Stocks are up slightly and mortgage bonds are about even as investors are anticipating tomorrow’s Fed announcement to contain QE3.  There could be a very big move either way, so we will suggest locking on short term transactions.

Stocks moved higher this morning, but only to recoup the losses from yesterday afternoon’s decline.  We don’t expect any huge movements before the major news events that are just around the corner, including Germany’s court decision and the Fed announcement on Thursday.  Meanwhile, Moody’s rating agency has announced that the U.S. could lose its AAA rating based on results of the upcoming congressional budget negotiations.  Mortgage bonds are capped at current levels which will keep rates from moving any lower for now.  The outcome of the decisions will certainly bring volatility and the pressure is on both Europe and the Fed to print more money.  We will advise locking ahead of the announcement, as there is a clear and significant level of resistance that has kept rates from going any lower.

With the political conventions over and Friday’s disappointing Jobs number weighing on investors, markets are about even at today’s open.  It’s a busy week with $66 billion in bond auctions, the German high court decision limiting the ECB bond buying on Wednesday, the Fed statement on Thursday,  and ending the week with CPI, Retail sales, and Consumer Sentiment on Friday.  According to some economists surveys, the probability of more Fed intervention is above 50%.  mortgage bonds are holding the gains from Friday at the moment.  However, QE announcements  of the past have had a negative effect on bonds immediately after, so we will lean towards a locking bias before Thursday’s announcement.

The Jobs Report indicated a sorely disappointing 96,000 new jobs for the month of August.  That caused the bond market to spike higher and mortgage bonds regained the losses of the last few days.  Ironically, the stock market is close to even  That indicates investors expect the Fed to step in with QE3 sooner than later.  With interest rates close to their lows today, we will advise a locking bias on short term transactions.

Markets opened close to even this morning as traders wait on details from Europe in regards to the ECB’s next step.  The battle between the ECB and Germany’s high court indicates the disconnect between the European countries.  With the only uniting element being currency, it’s easy to see why the better performing economies do not want to be shackled to those that are failing.  Rumors were out that the ECB would implement an unlimited bond buying program, but that is being denied at this time.  mortgage bonds are holding at a resistance level and may not see much movement until more information is released tomorrow.  We will advise a locking bias on short term transactions.

After a long weekend, stocks are holding on to the edge with the Dow clinging to13,000 and the S&P at 1399.  The ISM came in just below the target at 49.6, but anything below the level of 50 signals contraction.  Also, the employment component was the lowest since November 2009, which is not the direction the market wants to see…  This pushed stocks back down to critical levels, especially after the Ben Bernanke speech on Friday moved virtually all markets higher.  mortgage bonds opened lower, but have since regained the losses with pressure on stocks.  Thursday is a big day with the focus on Europe as Mario Draghi of the ECB, will discuss a potential bond buying program.  Friday also brings the monthly jobs report.  If the number is low, investors expect QE3 to happen sooner rather than later.  Rates are great, so a locking bias will protect against the upcoming volatility.

It’s the big day the markets have been waiting for and Ben Bernanke’s words are being dissected by investors.  The results at the moment have pushed the Dow up 100 points and the S&P 500 back above 1,400.  While there were few clues given, markets clearly believe in a higher probability that QE3 will be coming.  mortgage bonds are higher as well as rumors indicate that the next round of QE may include mortgage bond purchases.  Bonds have been range bound  for the last 7 days and are currently attempting to break out, but have yet to do so.  If it happens, interest rates will move a notch lower.  We will continue with a cautious floating bias.