Daily Commentary by Lary Baer 4.30.2012

Daily Commentary by Larry Baer:  The Commerce Department reported earlier this morning that consumer spending slowed in March despite a slight acceleration in income growth.  Consumer spending rose 0.3% last month - the slowest pace of the year so far.  Incomes posted a slightly better than expected gain of 0.4%.  The underlying rate of inflation at the consumer level (as defined by the personal consumption expenditure component of this morning's report) showed a modest increase of 0.2%.

Mortgage investors gave today's March Income and Spending figures little more than a passing glance.  Indications of softening economic growth here at home combined with the bubbling financial crisis in Europe together with news that Britain has fallen back into recession has built a strong foundation of support under the prospects for steady to perhaps fractionally lower mortgage interest rates.  The approach of French presidential and Greek parliamentary elections on Sunday, May 6^th have continue to squeeze additional "flight-to-quality" buying out of global investors - a process that continues to create solid demand for  U.S. dollar denominated assets like Treasury debt obligations and agency mortgage-backed security

Looking ahead to the balance of the week -- tomorrow morning's Institute of Supply Management's Manufacturing index and Thursday's initial weekly jobless claims report will likely amount to nothing more than a warm-up act for Friday's much anticipated April Nonfarm Payroll report.   

Market participants are currently anticipating the economy created 175,000 net new jobs in April - a nice improvement from the 120,000 gain registered in March - but still well below the 250,000+ pace necessary to just keep up with the number of new entrants into the workforce.  If the actual number matches or closely approximates the consensus estimate mortgage interest rates will likely remain fairly steady at current levels.  In the off-chance the actual headline number exceeds 200,000 -- look for surprised mortgage investors to react by pushing rates aggressively higher.     

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Weekly Viewpoint by Larry Baer 4.29.2012

Market Commentary 4.29.2012 : Lingering fears about the current weakness in the U.S. economy and Europe’s smoldering debt crisis will once again drive trading activity in the mortgage market this week.
Any news that undermines confidence in the economy or in the financial system will hurt stock prices and spur mortgage investors to nudge rates fractionally lower. Better-than-expected economic news will nudge stock price higher at the expense of higher mortgage rates.
Investors of every description are looking for signs that leaders, in Washington or at the Fed, are going to create a viable plan to revitalize the ailing economy. So far that leadership has yet to materialize – and until it does – mortgage interest rates will likely churn up and down in a very tight range.
It is worth noting that yields on everything from Treasury debt obligations to mortgage-backed securities are once again approaching the point where investing in these instruments creates only a slightly better return for investors than stuffing money under a mattress. Dramatically lower mortgage interest rates will likely soon be considered by the majority of investors to be pointless – or dangerous -- or dangerously pointless. If investors can’t get the risk adjusted “bang-for-the-buck” they are looking for in the mortgage market – they will begin to look at alternative assets like high quality corporate debt obligations. Heads up.

Daily Commentary by Larry Baer 4.27.2012

 Daily Commentary by Larry Baer:  U.S. economic growth tapered off in the first-quarter as business cut back on spending and inventory building.  Strong demand for automobiles during the quarter prevented the slowdown from becoming more pronounced.  Gross Domestic Product (an estimate of the value of all the finished goods and services produced within the country's borders over the course of period of time) expanded at a 2.2% annualized rate - noticeably throttling back from the fourth-quarter pace of 3.0%.  This "guesstimate" of the economic health of the nation from the Commerce Department will not likely change the Federal Open Market Committee's position that further financial stimulus is currently not under consideration.   This report is generally supportive of the prospects for steady to perhaps fractionally lower mortgage interest rates.  

In a separate report, the Labor Department revealed businesses have been able to ramp up hiring without significant corresponding gains in payrolls.  The department's quarterly employment cost index rose 0.4% during the first three-months of 2012, following a revised gain of 0.5% in the prior quarter.  The very modest gain in this economic metric strongly suggest wage pressures are unlikely to stoke inflation anytime soon - a positive for the prospects of at least steady if not fractionally lower mortgage interest rates.

Looking ahead to the coming week everything from Monday's Personal Income and Spending report to Tuesday's Institute of Supply Management's Manufacturing index to Thursday's initial weekly jobless claims report will likely amount to nothing more than a warm-up act for Friday's much anticipated April Nonfarm Payroll report.   

Market participants are currently anticipating the economy created 175,000 net new jobs in April - a nice improvement from the 120,000 gain registered in March - but still well below the 250,000+ pace necessary to just keep up with the number of new entrants into the workforce.  If the actual number matches or closely approximates the consensus estimate mortgage interest rates will likely remain fairly steady at current levels.  In the off-chance the actual headline number exceeds 200,000 -- look for surprised mortgage investors to react by pushing rates aggressively higher.     

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 4.26.2012

 Daily Commentary by Larry Baer:  The number of Americans filing first-time claims for government jobless benefits was higher than expected for the third consecutive week.  Initial claims for unemployment benefits dropped by 1,000 during the week ended April 21^st - a wide miss from the majority estimate from economists calling for a drop of 11,000.  This weekly data series is beginning to suggest the labor sector is contracting after showing hopeful signs of expansion during the last three months of 2011.  

This morning's labor market news blends with a string of other recent weak economic data to cause a growing concern that the country may be far more vulnerable to European economic woes and a slowdown in China than originally thought.  Until/unless stronger U.S. economic data emerges - it will continue to be difficult for companies to feel compelled to add headcount to their payrolls - and the background support for steady to perhaps fractionally lower mortgage interest rates will remain in place.

The Treasury Department will wrap-up this week's three-part auction series with the sale of $29 billion of 7-year notes this afternoon.  Tuesday's 2-year note sale and Wednesday 5-year note offering found solid demand - especially from foreign investors.  There is little reason to believe the string of aggressive bidding will be diminished at today's 7-year note sale.  I'll post the auction result on my website as soon as possible once bidding concludes at 1:00 p.m. ET.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 4.24.2012

Daily Commentary by Larry Baer:  Treading water.  

Traders are simply treading water this morning as they await the results of today's $35 billion 2-year Treasury note auction.  In the interim, market participants will keep one eye on the political headlines streaming out of Europe.  A major shift in political power in many of the countries in the region may signal compliance with the terms of recently completed financial bailout agreements may fall short of current expectations.  These unsettled conditions are continuing to support a flow of capital out of the euro-zone and into the relative safe-harbor of U.S. dollar denominated assets like Treasury debt obligations and agency eligible mortgage-backed securities.

Here at home the Census Bureau reported this morning the pace of new home sales unexpectedly fell 7.1% in March.  On its face that doesn't sound too good - but the 13% upward revision to the February number together with a 3% upward revision to the January data brought the pace of new home sales in the first-quarter of 2012 up to an annualized 16% compared to the last three-months of 2011.  The number of homes available for sale declined slightly, and the median house price edged up 6.3% on a year-over-year basis.  Mortgage investors shook their collective heads at the wide data revisions and shrugged the whole thing off.    

Still ahead this week -- Friday's first-quarter Gross Domestic Product report will take a distant backseat to the release tomorrow afternoon of the Federal Open Market Committee's post-meeting statement that will be followed in short order by the release of the Fed's official economic forecast and will conclude the same afternoon with a press conference by Fed Chairman Bernanke.  Thursday morning's initial weekly jobless claims report will draw lots of attention as mortgage investors debate whether to nudge rates lower because the economy is beginning to cool again - or whether to nudge rates higher because economic growth is on the threshold of another expansion phase.  

Scattered among this very active week of economic news and events the Treasury Department will be conducting a three-part auction.  Uncle Sam will look to sell $35 billion of 2-year notes at an auction that concludes at 1:00 p.m. ET today, $35 billion of 5-year notes tomorrow and $29 billion of 7-year notes on Thursday.  

The mortgage market has been nestled in a very sleepy 46 basis-point (14/32^nd) trading range this week - but that condition will be vulnerable to a rude adjustment over the coming three business days.  Heads up.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 4.23.2012

Daily Commentary by Larry Baer:  Global investors are increasingly concerned about signs of a developing Europe-wide recession.  Further economic erosion in the region could undermine the political will to tackle the debt crisis gripping most of the members of the single-currency union.  Shares on both global and domestic stock exchanges fell and the euro-zone currency tumbled lower driving demand for safe-haven assets like Treasury debt obligations and agency eligible mortgage-backed securities - a condition that is almost single-handedly providing support for the prospects of steady to perhaps fractionally lower mortgage interest rates in today's trading session.

Looking ahead to the coming week -- Tuesday's release of the March New Home Sales figures and Friday's first-quarter Gross Domestic Product report will take a distant backseat to the release on Wednesday afternoon of the Federal Open Market Committee's post-meeting statement, to be followed in short order by the release of the Fed's official economic forecast and concluding that same afternoon with a press conference by Fed Chairman Bernanke.  Thursday morning's initial weekly jobless claims report will draw lots of attention as mortgage investors debate whether to nudge rates lower because the economy is beginning to cool again - or whether to nudge rates higher because economic growth is on the threshold of another expansion phase.  

Scattered among this very active week of economic news and events the Treasury Department will be conducting a three-part auction.  Uncle Sam will look to sell $35 billion of 2-year notes on Tuesday, $35 billion of 5-year notes on Wednesday and $29 billion of 7-year notes on Thursday.  

The mortgage market has been nestled in a very sleepy 46 basis-point (14/32^nd) trading range this week - but that condition will be vulnerable to a rude adjustment over the coming four business days.  Heads up.

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME