Daily Commentary by Larry Baer 9.28.2012

Daily Commentary by Larry Baer:  The Commerce Department reported consumer spending rose in August by the most in six months.  The increase in spending was largely driven by higher gasoline prices, which rose 28.2 cents per gallon last month.  Personal incomes edged up 0.1% but the gain was eroded by a matching 0.1% rise in core inflation.   This data strongly hints economic growth in the third-quarter of 2012 will be slow - a condition almost certain to prove supportive of the prospects for steady to perhaps fractionally lower mortgage interest rates.   The likelihood the economy will accelerate in any meaningful way prior to end of the year is very low.

Looking ahead to the coming week -- mortgage investors will be keenly attuned to Monday's Institute of Supply Management's report on manufacturing activity in September and to the companion service sector report on Wednesday.  As usual Thursday morning's weekly initial jobless claims report will draw attention as will the minutes from the Fed's September 12^th and 13^th meeting released later that same afternoon.  All of these prior reports will be relegated to little more than background noise when the Labor Department releases its' September nonfarm payroll figures early Friday morning.  The entire battery of upcoming economic news is currently expected to be -- at worst, mortgage interest neutral -- and at best, slightly mortgage interest rate friendly.

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

Daily Commentary by Larry Baer 9.27.2012

Daily Commentary by Larry Baer:  The Commerce Department reported earlier this morning that durable goods (items manufactured to last three-years or more) tumbled an astounding 13.2% last month, the largest drop since January 2009, when the economy was in the depths of the recession.  Boeing received only one aircraft order in August, down from 260 in July, accounting for the bulk of the decline.  Demand for motor vehicles fizzled as well.  Excluding the transportation component - new durable orders were still down 1.6% on a month-over-month basis in August.  

The sharp drop for durable goods orders underscored the weakness in the economy, whose growth pace in the second-quarter was cut from a 1.7% to a 1.3% pace as the government data wonks published their final "guesstimate" of Gross Domestic product for the April through June time frame this morning.  

In a separate report, the Labor Department said the number of Americans standing in line to file first-time claims for government jobless benefits fell 26,000 last week to a two-month low of 359,000.  The average of new claims over the past month, a more accurate picture of labor market trends, fell by 4,000 to 374,000 - essentially unchanged for 2012.

The economy is creating just enough jobs to keep up with the growth of the working-age population, but nothing much more than that.  Manufacturing, which has been the main driver of the recovery from the 2007 -2009 recession, has been struggling to maintain forward momentum against the increasing headwinds of sluggish domestic and global demand.   Continuing fears Congress could fail to avert a "fiscal cliff" (the $500 billion or so in expiring tax cuts and government spending reductions set to take effect at midnight on December 31^st), on going debt problems in Europe, and slowing global economic growth leave businesses with little incentive to boost production and/or hiring.  

The "so what" factor behind all this statistical mumbo-jumbo is simple and straightforward - until more sustained signs of global economic growth develop - the support mechanism for steady to perhaps fractionally lower mortgage interest rates remains firmly in place.

For the balance of the day mortgage investors will likely take directional cues from trading action in the equity markets.  Should stock prices trade notably higher -- look for mortgage rates to trade fractionally higher as well.  It will likely take a rather sharp sell-off in the stock markets to provide enough momentum to drag mortgage interest rates notably lower from current levels.

Still to come -- the Treasury Department will wrap up their three-day debt sale when the final gavel falls at this afternoon's auction of $29 billion of 7-year notes (concludes at 1:00 p.m. ET).  Demand for this offering is expected to be strong enough to avoid creating much, if any upward pressure on mortgage interest rates.

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

Daily Commentary by Larry Baer 9.26.2012

Daily Commentary by Larry Baer:  Against expectations, new single-family home sales declined 0.3% month-over-month to an annualized rate of 373,000 units. The average sales price rose a record 11.2% and demand remained at a two-year high.  While the improvement is certainly a step in the right direction -- the new home market still has a long way to go to recovery.  According to data gathered by Jeffery Bartash, writer for the Wall Street Journal's "Market Watch" website -- purchases of new homes fell to just 306,000 in 2011, the lowest level every recorded since the government started to keep track in 1963.   By contrast, new home sales averaged from 877,000 to 1.28 million annually in the six years before the 2007 - 2009 recession.   

In a separate report the Mortgage Bankers of America said their Mortgage Application Survey for the week ending September 21^st showed mortgage demand for both refinance and purchase money mortgages expanded by 2.8%.  The purchase loan demand component of the index rose 0.7% while refinance requests increased by 3.3%.  Refinance applications accounted for 81.2% of all applications and 79.6% of the prospective loan volume.  

The contract rate for 30-year fixed-rate conforming mortgages fell by 9 basis-points to 3.63%, a new historical low.  The interest rate is down by 17 basis-points from four weeks ago and down 61 basis-points from the year ago mark.

Mortgage investors will likely take directional cues from stock prices as they go about managing interest rate risk over the balance of the day.  Should stock prices trade notably higher -- look for mortgage rates to trade fractionally higher as well.  It will likely take a rather sharp sell-off in the stock markets to provide enough momentum to drag mortgage interest rates notably lower from current levels.

Still to come -- Thursday's August Durable Goods Orders, weekly jobless claims numbers and the final revision to Q2 Gross Domestic Product will all be overshadowed by the Treasury Department's remaining auctions of $35 billion of 5-year notes today and tomorrow's sale of $29 billion of 7-year notes.  Demand for both offerings is expected to be strong enough to avoid creating much, if any upward pressure on mortgage interest rates.

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

Daily Commentary by Larry Baer 9.25.2012

Daily Commentary by Larry Baer:  There was a tidbit of upbeat economic news contained in this morning's September Consumer Confidence Index and the July S&P/Shiller composite home price index.  Both reports are generally considered to be second-tier data - but with nothing else to consider - these two reports drew a little passing attention from investors.

The S&P/Shiller data showed single-family home prices rose for a sixth month in a row in July, though the improvement was not as strong as expected.  The composite index of home prices in 20 metropolitan areas gained 0.4% on a seasonally adjusted basis, well shy of most analysts' expectations calling for a gain of 0.9%.

The private Conference Board's index of consumer confidence surged 70.3% in September to its highest level since February, blowing away expectations of a modest gain.  A significant rise in the expectations segment was the primary driver of the gain.  Investors are far more interested in what consumers are actually doing - rather than how they say they are feeling.  In order for consumer confidence to continue to grow a more robust job market recovery is needed - a condition not expected to show notable improvement for several more quarters.  With consumer's attention soon shifting to the presidential election and blaring new headlines surrounding the approaching national debt fiscal cliff, consumer confidence in coming months will almost certainly weaken.  For these reasons investors chose to completely shrug off this report.

Mortgage investors will likely take directional cues from stock prices as they go about the business of setting interest rates today.  Should stock prices trade notably higher -- look for mortgage rates to trade fractionally higher as well.  It will likely take a rather sharp sell-off in the stock markets to provide enough momentum to drag mortgage interest rates notably lower from current levels.

Still to come -- Wednesday's August New Home Sales figures and Thursday's trifecta of August Durable Goods Orders, weekly jobless claims numbers and the final revision to Q2 Gross Domestic Product will all be overshadowed by the Treasury Department's three-part, $99 billion note auction schedule to run from Tuesday through Thursday.   $35 billion of 2-year notes will hit the auction block today, followed by $35 billion of 5-year notes on Wednesday and the whole thing will wrap-up with the sale of $29 billion of 7-year notes on Thursday.  Demand for all three offerings is expected to be strong enough to avoid creating much, if any upward pressure on mortgage interest rates.

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

Daily Commentary by Larry Baer 9.21.2012

Daily Commentary by Larry Baer:  With an empty economic calendar today mortgage investors will likely take directional cues from stock prices as they set mortgage interest rates.  Should stock prices trade notably higher look for mortgage rates to remain steady to fractionally higher.  It will likely take a rather sharp sell-off in the stock markets to provide enough momentum to drag mortgage interest rates lower from current levels.

Looking head to the coming week -- Wednesday's August New Home Sales figures and Thursday's trifecta of August Durable Goods Orders, weekly jobless claims numbers and the final revision to Q2 Gross Domestic Product will all be overshadowed by the Treasury Department's three-part, $99 billion note auction schedule to run from Tuesday through Thursday.   $35 billion of 2-year notes will hit the auction block on Tuesday, followed by $35 billion of 5-year notes on Wednesday and the whole thing will wrap-up with the sale of $29 billion of 7-year notes on Thursday.  Demand for all three offerings is expected to be strong enough to avoid creating much, if any upward pressure on mortgage interest rates.

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