Mortgage Mike’s Daily Rate Commentary

The Labor Department reported that the U.S. economy added 80,000 new jobs in June, and that was below the already low estimate of 100,000.  This is pressuring stocks lower and bonds higher for now, but it also adds to the expectation that the Fed will virtually have to implement some form of additional monetary stimulus very soon.  mortgage bonds have touched a new high which puts interest rates at their all time lows once again.  Even though rates are as low as they have ever been, investors have limited the degree of lower rates.  That indicates their fear that the markets could turn very quickly upon any announcement by the Fed.  We will suggest a locking bias at this time.

The ADP Employment Report came in at 176,000 new private sector jobs, which beat the estimate of 105,000.  That is giving some hope to tomorrows monthly Labor Department Jobs Report, but no one really expects too big of a surprise based on the recent string of disappointing reports.  The ISM Service Index was reported at 52.1 which is also the lowest number since January 2010, so that is countering any good feelings about the better jobs number.  Markets are also responding to global central bank rate cuts with the ECB, the bank of England, and China all lowering lending rates.  Stocks are about even at the moment, and mortgage bonds are trading higher along the top end of their range.  That keeps interest rates low for today, however, we will advise a locking bias later today as tomorrows jobs report could bring volatility.

Today will be a short day for the markets as stocks close at 1 pm ET and bonds follow at 2 pm ET.  There are no economic reports today, and volume and price movement are expected to be minimal.  mortgage bonds hit an all time high yesterday, so interest rate continue to look fantastic.  This is a pivotal point for bonds as they strive to make new highs due to the slew of negative economic lately.  Any sign of good news could cause a quick change, so a cautious floating bias is ok as long as you are close to the lock trigger.  Have a happy 4th of July celebrating the independence and freedom we enjoy in this great country.

This is a short week for the markets.   With the 4th of July on Wednesday, all markets will be closed that day and volume will likely be lighter on the following days.  However, Friday has the monthly jobs report scheduled, so volatility could certainly pop up depending on the jobs figures.  Today is starting with stocks lower and mortgage bonds higher due to a lower than expected ISM manufacturing report.   The target of 52.2 was missed, with a 49.7 being reported.  Anything below 50 signals a contraction, so this adds to the slowing economy argument, and is also the first contraction report since July 2009.  mortgagebonds are pushing to their all time highs, so interest rates are pricing out well.  We will suggest a locking bias on short term transactions for this short and potentially volatile week.

With all major indexes up significantly, the stock market is having one of the best days of 2012.  The see-saw tradeoff between the stock and bond markets is continuing, with the bond market currently under pressure as investors pull money from the safe haven of bond and purchase riskier assets like stocks.  This is pushing interest rates higher following yesterday’s near record low interest rates.  The catalyst for today’s bullish sentiment was news from Europe that brings hope to a plan to solve their debt crisis.  Since we hear similar news often, it is surprising that investors are so quick to jump at any hope of good news…  With inflation remaining tame, the hope for continued low interest rates continues.  If you locked your rate in yesterday, nice work!  If not, we are still suggesting a locking stance, as the volatility at these lofty bond market levels continues.

Mortgage bonds are drifting lower today, as stocks are pushing higher.  We seem to be continually in a push-pull battle, with stocks up one day and down the next.  It seems as if investors are constantly searching for reasons to buy or sell.  Pending Home Sales rose 5.9% in May, providing hope for an improving housing market.  Also helping spur enthusiasm was the Durable Goods orders showing a 1.1% increase in May.  Since the trend has been declining recently, this was welcome news.  Since mortgage backed securities are in a tightening trend, locking is very much advised on short term transactions.  Also, if we step off the trend of improving interest rates, we will likely see higher rates in the future.  This is a great time to take advantage of amazing interest rates…

Mortgage bonds are down today after making a strong run yesterday where they threatened to push up into unseen territory.  After hitting the ceiling, they were forced back down and now remain within the channel they have bounced around in since late May.  As time goes by, mortgage bonds are being pushed into a tight range.  Eventually, they will either be forced higher (resulting in lower rates), or they will be held down.  If held down, we will change from a long term float stance into a locking stance, as the uptrend we have enjoyed for 2+ months will no longer be intact.  With Germany’s credit downgrade, the likelihood of low rates continuing looks promising.  Given the recent volatility, we will continue suggesting a locking stance.

The bond market is down modestly at the moment, as the stock market is trying to make a comeback following yesterday’s significant sell off in all major stock indexes.  Interest rates have been bouncing around in a tight channel since late May, creating unprecedented opportunities for people to capture incredibly low interest rates.  Thankfully, the Fed extended “Operation Twist” last Wednesday.  This program has made the Fed a significant buyer of long term bonds for a while, and is partially responsible for the crazy low interest rates we have been enjoying for the past couple years.  Given the Fed’s commitment to hold down interest rates, and the continued global economic turmoil, we feel that low rates will be around for a while.  This takes much of the pressure off of longer term interest rate locks.  However, in the short term, we are suggesting a locking stance as the volatility in the market continues!

It’s Fed day!  With no other economic reports on the schedule, world markets are all waiting to hear what the Fed will say and do about the current financial situation.  With a recent string of negative reports, it is virtually expected that Operation Twist will be extended, as well as some other form of QE3.  But many feel that there is not much left that the Fed can do, as we are 3 years into their stimulus efforts.  Stocks are holding steady and bonds are down just slightly for now.  The announcement is set for 2pm ET today so volatility will be high today.  We will suggest locking before then as the risk for current rates to price higher outweighs the risk of a significant move lower.

Stocks are higher this morning with a move that appears to be on speculation of what the Fed might say tomorrow. The Housing market delivered Starts and Permits for May, with the first slightly below and the later slightly above estimates. There is no headline from Europe at the moment; however, the G20 is meeting in Mexico. One can almost sense the printing presses being fine tuned all around the world, preparing for a currency flooding event… mortgage bonds are still close to even for now. Unless there is some surprise announcement, price movement will likely be limited until tomorrow. Locking is hard to argue with at these levels, which we will suggest on short term transactions. We will be closely monitoring the Fed announcement tomorrow. Should QE3 be announced, look for the stock market to turn higher.