Yesterday was a big day for the NASDAQ and the stock market in general;
the bond and mortgage markets held quite well given the strong equity market. The market got a boost in the morning with September existing home sales better than estimates.
Sales were up 2.4% to 5.17 million units against the 1% expected. Year-over-year sales increased 1.7%, and the median sales price $209.500.00. Approximately 2.3 million homes are for sale, marking a 5.3% supply increased based on present sales pace and up 6% from last year. 29% of the sales were 1st time buyers, still a very weak percentage.
We will see new home sales on Friday, expectations are not so good; expected down 8.3% to 460,00 units (annualized).
The overall bond market was reasonably quiet yesterday
, the 10-year yield did increase 4 bps, mortgage prices opened weak at -13 bps at 9:30 a.m., but at 4 p.m. about unchanged on the session. A little perspective; the Dow Jones Industrial Average
(DJIA) is now where it closed a week ago last Friday. Last week was quite volatile but when the dust settled last week the DJIA was off just 164 points. We continue to expect the equity market is going to work lower.
There have been no changes to the global economic outlooks; China and Europe continue to struggle. The U.S. has very little consumer spending going for it and the housing sector remains very soft. The improvement in the stock market since last Wednesday should not be seen as a buying opportunity, more a selling opportunity.
Today the September Consumer Price Index will be released.
The Fed wants inflation at 2%; it is currently running at 1.6%. The Fed thinks it can keep interest rates low long enough to increase spending and in turn rev up growth as inflation begins to bite.
Wishful thinking in my view; the Fed has kept rates at almost zero for four years and at best growth is subdued. No wage improvements as corporations clamp down on productivity and cut jobs to increase revenue, profits and their stock values leaving most Americans still struggling.
Next week the Federal Open Market Committee (FOMC) will debate whether or not to end the monthly QEs,
the FOMC has made it clear that it would end it this month. Last week the stock market took a hit and a few Fed officials began to talk about keeping the small purchases going and not end it.
Last week the DJIA declined 164 points, but the trading on Wednesday shook St. Louis Fed President James Bullard, he said the Fed should delay. How much longer the Fed will believe it has any influence on the economic growth is difficult to anticipate.
The Fed’s job is to improve employment, that hasn’t happened much --- most jobs are low paying and businesses are want to provide any pay increases. The Fed also has the responsibility to keep inflation under control; that it has done too well. No matter what Bullard would like to see, expect the Fed to end the QE next Wednesday with the policy statement.
The plus for the economy now is mortgage rates declining; we believe rates will move lower.
The small investor has not been sucked into equity markets much, with low mortgage rates the housing sector is likely to improve as long as rates remain low. When rates increased this summer, the increase wasn’t much, but housing slowed.
More credit and less Dodd Frank will go a long way to right the ship and the economy. It has been six years since the housing market crash, still bureaucrats are living in the past. Once in 60 years the housing market blew up and the blame rests with Wall Street and unscrupulous mortgage lenders that took advantage of the situation.
10-year note: -8/32 (25 bp) 2.22% +4 bp
5-year note: -2/32 (6 bp) 1.42% +3 bp
2-year note: unch 0.35% unch
30-year bond: -23/32 (72 bp) 3.00% +4 bp
Libor Rates: 1 mo. 0.157%; 3 mo. 0.231%; 6 mo. 0.323%; 1 yr 0.546%
30-year FNMA 3.5 Nov: 103.73 -5 bp (+8 bp from 9:30)
15-year FNMA 3.0: 104.17 unch (+3 bp from 9:30)
30-year GNMA 3.5: 104.90 +1 bp (+9 bp from 9:30
Dollar/Yen: 106.92 -0.03 yen
Dollar/Euro: $1.2719 -$0.0081
Gold: $1248.60 +$3.90
Crude Oil: $82.81 +$0.10
DJIA: 16.614.81 +215.14
NASDAQ: 4419.48 +103.40
S&P 500: 1941.28 +37.27