By David Shirmeyer, CEO at Sigma Research
Treasuries and MBSs are starting better again this morning; now the 10 at 2.17% and down frm 2.30% on 12/24. Crude oil declining again, a support for bonds keeping inflation fears on hold. Crude declines also leading to declines in most commodities. Europe’s stock markets under pressure today on Greek fears of debt defaults and the inability to elect a new prime minister. Early trade in US stocks were soft indicating a lower open at 9:30.
At 9:00 the Oct Case/Shiller 20 city annualized home price index was expected at 4.5%, as reported 4.5% increase frm Oct 2013. As you know, we don’t pay much attention to the Case/Shiller, a dated release and most times doesn’t correlate with many other housing market data. The take away, at least by many, is that smaller increases in home prices will make home purchases more affordable to more Americans. That of course assumes that consumers are really interested in buying a home. Most evidence points to the reality that home buying is no longer on the wish lists for many people, especially young adults. We submit that until inflation begins to push home prices higher, there is less incentive to buy. Nationally, prices rose 4.6% after a 4.8% gain in the year ended in September. Home sellers also less willing to move as price gains in most of the country make selling now a bad decision.
Another housing data point this morning "Home sales in November plunged compared to a year earlier, according to data published Monday by Redfin. The Seattle-based real estate brokerage said in a press release that the number of homes sold during the month dropped 5%, representing the first year-over-year decline in inventory for 2014. Home sales fell by 21% compared to the previous month. "The decrease in sales was not due to absent buyers, who often pause their home search during the holidays, but to too few sellers putting their homes on the market," Redfin said in a press release Monday. While home sales declined, prices held relatively steady. The median sale price in November increased 6.2% compared to a year ago and, for the past three months, has remained at approximately $274,000.”
Crude oil prices still falling; in early trade this morning the price was off $0.91 frm yesterday’s close trading at $52.70 (see below for 10:00 price). Crude is down 46% this year, the biggest decline since 2008. The fall mostly due to the highest U.S. production in more than three decades. As long as the price of crude continues to decline it is a nice support for the bond markets.
The DJIA opened -33, NASDAQ -11, S&P -5. The 10 at 9:30 2.17% -4 bps, 30 yr MBS price +13 bp.
At 10:00; Dec consumer confidence index frm the Conference Board, expected at 93.0 frm 88.7 in November, as reported the index was less at 92.6. The stock indexes moved a little lower on the report, the bond and mortgage markets didn’t react.
Trading is thin this week, likely will be that way today and through the rest of the week. Traders and investors looking to 2015 that presently is optimistic toward equity markets and bearish toward interest rates through the year. The Fed’s plan to begin increasing interest rates have most analysts predicting higher rates next year; just as was the forecast at this time last year for 2014. Interest rates didn’t meet those higher rate forecasts; the 10 yr at the beginning of 2014 at 3.00%, now 2.17%. Rates will increase through 2015 but not much, and the ride higher will be choppy tracking the stock markets and the yield differential between other G-7 countries. Inflation in 2015 will remain subdued; no pricing pressures in the US and globally. The only economy is the world that isn’t slipping is the US; Europe on the edge of a deflation spiral currently, China’s growth half of what it was two years ago. With that background and that we expect a major correction in US stocks in Q1 2015 should keep rates from increasing much regardless of what the Fed does.
FLOAT BUT NOT LIKELY TO SEE MUCH MORE IMPROVEMENT TODAY.
PRICES @ 10:15 AM
10 yr note: +9/32 (28 bp) 2.17% -4 bp
5 yr note: +6/32 (18 bp) 1.67% -4 bp
2 Yr note: +2/32 (6 bp) 0.68% -4 bp
30 yr bond: +23/32 (72 bp) 2.74% -4 bp
Libor Rates: N/A
30 yr FNMA 3.5 Jan: @9:30 104.23 +13 bp (+23 bp frm 9:30 yesterday)
15 yr FNMA 3.0 Jan: @9:30 103.88 +2 bp (+18 bp frm 9:30 yesterday)
30 yr GNMA 3.5 Jan: @9:30 104.88 +8 bp (+20 bp frm 9:30 yesterday)
Dollar/Yen: 119.07 -1.60 yen
Dollar/Euro: $1.2172 +$0.0020
Gold: $1198.40 +$16.50
Crude Oil: $53.75 +$0.14 (low this morning $52.70---volatile)
DJIA: 17,985.51 -52.72
NASDAQ: 4789.86 -17.05
S&P 500: 2083.60 -6.97