The stock market continues to attract more investment, the interest rate markets continue to fail at critical technical levels. The Ukraine/Russia concern appears to be lessening somewhat. The US and Europe continue to resist adding additional sanctions on Russia as Russia continues to arm Ukraine separatists. The Q2 earnings are coming in overall better. The IMF yesterday reduced its outlook for 2014 US growth from 2.0% in June to 1.7% now. Weekly jobless claims this morning fell to an eight year low at 284K -19K from last week; maybe because of an increase in auto workers; the estimate was an increase of 7K. Re-tooling in auto factories for the new model year is typically difficult for the government to gauge, causing claims to gyrate at this time of year. The 4 wk average -7250 to 302K.
Those are the headlines this morning. Nothing pressing on the Israel/Hamas fighting and less concern that Europe and the US will not step down hard on Russia with serious sanctions. The 10 year note, as we have repeatedly pointed out, has stone wall resistance at 2.44%. Unless geopolitical issues intensify, or the stock markets decline, the bond and mortgage markets will face a steep hill to climb for interest rates to decline much. At the moment it isn’t likely investors are going to reduce investing in equities, and the surprising lack of outward concern over Ukraine from the US and Europe has pushed that issue off the front burner. Globally, euro-area manufacturing and services grew while a gauge of Chinese factory activity rose to an 18-month high in July. The ECB has added stimulus with a new lending program last month; manufacturing and services index increased to 54 from 52.8 in June. In China manufacturing grew to an 18 month high in July.
At 9:30 ahead of June new home sales, opened -5, NASDAQ +10, S&P +2; prior to the actual 9:30 open the DJIA had traded +35. The 10 year at 9:30 2.51% +4 bps and 30 year MBS prices -17 bps.
At 10:00 June new home sales were expected to have declined 5.75% from May to 475K annualized units from 504K in May. As reported sales dropped 8.1% to 406K units. Recall May sales were up a weird 18%, on today’s data May sales were revised from 504K to 442K. New home sales are contracts signed but not closed yet. Medina prices increased as builders are increasing prices with higher land and construction costs. No market reaction to the weaker sales. Tuesday June existing home sales were +2.6%, better than +2.0% forecasts, but year/year existing home sales were down 2.3% from 2013.
JP Morgan Chase has been backing away from FHA and VA loans according to an article in today’s Journal. Concerns that those type loans lead to too many claims from the regulators. According to the article Chase’s share of FHA and VA loans in Q2 declined to 2.3% from 12.7% a year ago. BofA also has reduced its interest in FHA loans.
One day closer to the FOMC meeting next week and the preliminary Q2 GDP. Technicals are still bullish; as noted yesterday the 10 must move above 2.57% for our work to turn bearish. That said, on the other side of it, the 10 cannot crack resistance at 2.44%. More risk now in floating; as long as 2.44% holds there isn’t much incentive to float at the moment; risk/reward isn’t acceptable. A lot of counter-countervailing data and news from the Fed, IMF and analysts; the stock market shows no sign of softening with better earnings and no other alternative for investors. Slow growth but no inflation, no reason to exit stocks yet, so no impetus to buy treasuries or MBSs.