Mortgage Mike’s Daily Rate Commentary

Markets opened with all the indexes down by over 1%… The reason? Political deadlock.  Washington continues to take it to the last hour with Fiscal Cliff negotiations, or breakdown, depending on how you look at it.  Economic reports were all inline or better than expectations, with the exception of Consumer Sentiment being slightly lower than expected.  mortgage bonds are benefiting from the uncertainty and have bounced off of a support level nicely.  We will continue with a floating bias.

Markets have stayed close to even today as investors are caught between some good economic data and the ever looming cloud of the Fiscal Cliff.  The final read of 3rd quarter GDP came in at 3.1% which was above the 2.87% expectation.  Then, existing Home Sales came in at 5.04 million  versus the 4.90 million annualized projection.  Finally, the Philly Fed Index manufacturing survey was 8.1 versus an estimate of -1.3.  In spite of all the positive news of the morning, all major stock indexes in the red for the moment.  mortgage bonds are slightly positive and are trying to stay above the 100 DMA.  We will advise a cautious floating bias.

After several days of climbing higher, stocks are taking a breather.  This comes after the stock market hit a 2 month high.  The hope from investors that a Fiscal Cliff agreement will be reached by the end of the year has been evident in equities, regardless of the speech rhetoric that Washington has delivered.  mortgage bonds have been pressured lower between the rise in stocks combined with some of the worst auction results of the year.  The result of this over the past several days has pressured interest rates higher.  Still, the Fed is committed to bond buying, and bonds are up this morning with rates still close to all time lows.  We will start today with a floating bias.

Stocks are higher at the open due to rumors of progress on the “Fiscal Cliff” talks.  The word is the republican offer includes tax increases on those with an AGI of $1 million or more, but accompanied by $1 trillion in cuts.  The Whitehouse has yet to respond, but the parties are reportedly meeting again right now.  On the economic calendar, the Empire State Manufacturing Index fell to -8.1% versus an estimate of +2.0.  While this would normally have a greater impact on the markets, the Dow is positive by 70 plus points at the moment.  mortgage bonds are slightly lower, but remain above a critical level of support.  We will maintain a cautious floating bias.

Markets opened relatively flat as CPI was in line with expectations and inflation continues to be in an acceptable range.  It appears the surprise White house meeting yesterday did not result in any type of agreement on the “Fiscal Cliff”.  John Boehner is reportedly heading back to his home state of Ohio, leaving most people to conclude that that no resolution was achieved.  At least if the Mayan calendar proves true, we won’t need to worry about the “Fiscal Cliff”…  Mortgage bonds are bouncing off of a level of support, which is likely due to Fed buying given the low ratings of this week’s bond auctions.  There is plenty of uncertainty in the short term for now, so we will continue with a cautiously floating bias as long as pricing stays above support.

Markets opened with stocks moving higher on positive data from German investor confidence, and  a sense that the Fiscal Cliff could be avoided with a deal in the making.  With the President making it clear that taxes must go up on higher income earners, the growing talk among republicans is to accept that aspect.  This would take the focus off of what seems to be the principal argument for many, and shift negotiations over to the entitlement/spending problems.  The Dow is higher by 100 points at the moment, with the Nasdaq and S&P 500 both positive as well.  The Fed makes their announcement tomorrow and investors will be waiting for any indication to QE4.  mortgage bonds are under pressure, but it looks like Fed buying is keeping losses in check for now.  We will continue with a cautious floating bias.

Markets opened relatively mild this morning as there are no economic reports on the calendar today.  The FOMC starts their 2 day meeting tomorrow, with the conclusion on Wednesday.  While this announcement typically addresses any shift in monetary policy, investors will be listening for comments regarding “Operation Twist”, which is scheduled to end this year.  Could it be the announcement of QE4?  President Obama and John Boehner met face to face on Sunday afternoon and a statement representing both sides was released shortly after.  There were no details, but the message stated that “the lines of communication remained open.”  mortgage bonds are slightly positive for now, but have treasury auctions to contend with this week.  We will start the week with a cautious floating bias.

The Jobs report came out with 146,000 new jobs versus estimates of 90,000.  But the big surprise was the unemployment rate at 7.7%, which is the lowest figure seen in 4 years.  While these are the headline numbers, the ,Labor Force Participation Rate dropped by .2%.  That .2% is equal to approximately 350,000 people that decided to stop looking for employment.  This is also the lowest LRPR reading in 31 years.  The other seasonal factor  considered shows the biggest increase in jobs was in the retail sector.  Sound like holiday seasonal hiring? Previous jobs readings for October and September were also revised lower by 49,000. All in all, not really a great report.  Stocks spiked higher initially at the open, but the gains are modest for now. mortgage bonds dropped like a rock at the open, but have now moved back above their moving averages thanks to the Fed bond buying.  We will start with a floating bias..

Initial Jobless Claims were reported at 370,000 which is 25,000 lower than the previous week and below the 382,000 estimate.  Markets are all close to even at the moment with investors looking to tomorrow mornings monthly Jobs Report.  It’s clearly the Fiscal Cliff issue that is keeping investors paralyzed for now.   With more and more companies paying out dividends early, the private sector is preparing for a major shift from current tax rates…It seems to be a foregone conclusion that any deal will result in higher taxes for most, but certainly for the upper income earners.  mortgage bonds are flat as well, as have not been able to break above resistance.  The Jobs report might be the catalyst to do so, but the risk of floating at these levels is a bit high, so we will advise locking before tomorrow if the transaction pricing is available.

Stocks and bonds are both close to flat at the open, as there are no economic reports on the calendar for today.  The Fiscal Cliff continues to keep investors, companies, states, and citizens paralyzed in terms of how  a lack of resolution will affect the country.  In addition to any Fiscal Cliff update, markets are looking to tomorrow’s ADSP report and Friday’s monthly Jobs Report as the catalyst to move one way or the other.  mortgage bonds are holding slightly to the positive side for now, but a wedge has formed that started in September.  Prices continue to trade within a tighter formation and often result in a strong breakout one way or the other.  With the Fed buying mortgage bonds, it supports the argument that rates will not move too high anytime soon.  We will maintain a cautious floating bias for now.