The global economies are slowing according the latest IMF data released yesterday; the US has also been revised slightly lower but remains the strongest economy in the world. That the rest of the world is slowing sent US stocks down hard yesterday and gave the bond market one of its best days in months. As noted yesterday, almost every longer frame outlook from the Fed to the IMF has seen forecasts be revised weaker. This morning very early US stock indexes were trying to recover a little from yesterday’s 272 point decline in the DJIA, by 9:00 however the key indexes somewhat gave up the battle and were trading abut unchanged. The 10 yr yield early increased 2 bps to 2.36% but at 9:00 back to unchanged at 2.34%.
Weekly mortgage applications increased 3.8% last week according to the MBA. The Refinance Index increased 5% from the previous week; the purchase index was up 2.0%. 56% of apps were for refinance, unchanged from the previous week. According to MBA conforming rates declined to 4.30% from 4.33%% for 80% loans with points at 0.19. Jumbo loan balances (greater than $417,000) decreased to 4.215 from 4.285, with points increasing to 0.29 from 0.15 (including the origination fee) for 80% loans. Jumbo rates continue to be lower than conforming. OK these are applications; how many will actually be approved and closed is where the rubber meets the road. The other day Ben Bernanke said he was rejected when he tried to re-finance his home in Washington. More and more we are hearing stories that banks are turning the screws on credit after relaxing a little in the last couple of years.
Lenders are continuing to tighten the credit vise on homebuyers after five straight years of economic expansion, imposing the toughest standards since at least 1998, according to a new index by CoreLogic. “It is clear that credit is quite tight relative to normal,” said Mark Fleming, chief economist at Irvine, California-based CoreLogic. While banks shouldn’t revert to the loose credit standards of the housing bubble, it’s possible for lenders to expand credit while still being prudent, as they did in the late 1990s, he said. It shouldn’t be news, unless the housing sector improves the overall economy will continue to muddle along. Will never let our readers forget how devastating Dodd/Frank legislation has been to the economic recovery.
At 9:30 the DJIA opened +10, NASDAQ +4, S&P +1. 10 yr 2.34% unchanged and 30 yr MBS price +5 bps from yesterday’s close and 29 bps better than at 9:30 yesterday. Europe’s stock markets declined this morning to an 8 week low as investors re-think the valuations that have exceeded reality based on the waning economic outlook.
This afternoon Treasury will auction $21B of 10 yr notes, re-opening the 10 issued in August; should be interesting after the big decline in its rate yesterday, down 8 bps in yield. The auction is at 1:00 pm. At 2:00 the minutes from the Sept. FOMC meeting will be released, always interesting, like a detective story for analysts trying to decipher what it all means. Some members hawkish, some dovish about when the Fed should begin increasing rates. Since the meeting forecasts from Europe and China and Japan have been lowered possibly allowing (causing) the Fed to hold rates at current levels for longer than had been expected when the meeting occurred.
Chicago Fed Pres. Charles Evens saying unemployment remains too high and the dollar’s strength could hurt exports. Evens will be a voting member on the FOMC next year, his remarks about employment and the rising dollar is like preaching to the choir now. “Weakness abroad could translate into a higher exchange value for the dollar against other currencies, further reducing net exports,” he said. “A higher dollar also would result in lower prices for imports, which, in turn would hold down inflation and delay progress toward our 2% inflation target.” Evans has previously said that he favors holding rates near zero until the first quarter of 2016.
PRICES @ 10:00 AM
10 yr note: +1/32 (3 bp) 2.34% unch
5 yr note: +2/32 (6 bp) 1.61% -2 bp
2 Yr note: unch 0.50% unch
30 yr bond: +3/32 (9 bp) 3.05% unch
Libor Rates: 1 mo 0.153%; 3 mo 0.232%; 6 mo 0.326%; 1 yr 0.571%
30 yr FNMA 3.5 Oct: @9:30 103.25 +5 bp (+29 bp from 9:30 yesterday)
15 yr FNMA 3.0 Oct: @9:30 103.57 -1 bp (+11 bp from 9:30 yesterday)
30 yr GNMA 3.5 Oct: @9:30 104.28 +3 bp (+27 bp from 9:30 yesterday)
Dollar/Yen: 108.12 +0.09 yen
Dollar/Euro: $1.2674 +$0.0005
Gold: $1218.10 +$5.70
Crude Oil: $87.89 -$0.96
DJIA: 16,716.95 -2.44
NASDAQ: 4381.05 -4.16
S&P 500: 1933.53 -1.57