A little better start this morning; the 10 at 2.45% at 9:00, 30 yr MBS price +5 bps from yesterday’s close. Stocks rallied yesterday on relaxed tensions out of Ukraine, this morning the key indexes started earlier at unchanged. There are no scheduled economic releases today, and this week there are no Fed officials out there with their comments because next week the FOMC meets and the week prior there is a quiet period.
Yesterday markets breathed a little easy when Ukraine separatists turned the bodies and black boxes over to the Netherlands. It didn’t make it 24 hours before separatists were at it again. News from the region that separatists shot down two Ukrainian fighter jets over a town close to where Malaysia Airlines Flight 17 crashed. The reports put the safety play back in the bond markets. The shoot-down of the jets marks the first time a plane has been brought down over Ukraine since the crash. According to the news wires, a spokesman said the Ukraine army dispatched a team to the scene to establish the exact circumstances of the downing of the jets.
Yesterday the EU decided to impose sanctions on people and organizations who have provided support to Russian decision makers, agreeing to name specific targets as early as Thursday. Targets are expected to include for the first time penalties against prominent Russians close to Putin. A step in the right direction, but as we have noted, Europe is going to be slow to tighten the noose because of the direct impact on the soft economies in the region. According to reports there are huge differences within Europe as to what to do. British Foreign Secretary Philip Hammond said "the world has changed," and Lithuanian Foreign Minister Linas Linkevicius criticized the EU for "inaction" and said it needs to "wake up." Have not heard anything from Pres. Obama about any additional sanctions; likely there are behind-the-scenes discussions with Germany and other European officials that attempt to work out something that everyone can agree on.
The weekly MBA mortgage applications out this morning. The headlines looked better but most was more refinancing; still no real increases in purchases. Note that shorter term loans increased more than longer dated 30 yr loans; with markets assuming the Fed will increase rates next year, interest rates at the middle of the curve have increased more than the 10 or 30 yr treasury’s. The Market Composite Index increased 2.4% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 3 percent compared with the previous week. The Refinance Index increased 4% from the previous week. The Purchase Index increased 0.3% from one week earlier. The unadjusted Purchase Index was 15% lower than the same week one year ago. The refinance share of mortgage activity increased to 54.4% of total applications, the highest level since March 2014, from 53.6% the previous week. The adjustable-rate mortgage (ARM) share of activity remained unchanged at 8% of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained unchanged at 4.33%, with points increasing to 0.23 from 0.20 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) decreased to 4.21%, the lowest level since May 2013, from 4.23%, for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 4.03% from 4.04%, with points increasing to 0.15 from 0.02 (including the origination fee) for 80% loans. The average contract interest rate for 15-year fixed-rate mortgages increased to 3.47% from 3.41%, with points increasing to 0.28 from 0.23 (including the origination fee) for 80% loans.
At 9:30 the DJIA opened lower, -38, NASDAQ +10, S&P +1; 10 yr 2.45% -1 bp. 30 yr MBS prices, not much changes, +5 bps from yesterday’s closes.
Two main focuses today; earnings reports and the Ukraine escalation in fighting. No economic reports. All of our work continues to hold bullish biases; the 10 at 2.45% is getting a little support and close to its key resistance at 2.44%. Big money still hedging geopolitical risks and concerns that stocks may stub their toes. How can markets truly measure the Ukraine situation? So far sanctions have not had any noticeable impact on economic conditions and so far it is a regional problem. Equity markets are getting better Q1 earnings; some not meeting estimates but the major companies have overall been reporting better earnings and revenue growth. The only way to accept what is happening in markets is to work off the technicals and market price action. We won’t even try to handicap the near term outlook for rates; attempting to rationalize and anticipate Ukraine, or Israel, on how each will affect market prices. Go with what price action is doing; as we noted yesterday, the 10 yr according to our work will continue to hold a bullish bias as long as the 10 doesn’t climb above 2.57%. Looking ahead; next week the FOMC meets and the July employment report will be released; that isn’t going unnoticed by traders whose time frames are measured in minutes and days.