June 15th, 2011 8:01 AM by Lehel S.
Treasuries and mortgage markets were pounded yesterday, the 10 yr and mortgage rates jumped 11 basis points in rates. Yesterday the equity markets rallied on news from China that its industrial production increased more than expected and a better May retail sales than thought. It appears a one and off trade based on what we have so far this morning.
At 8:30 May consumer price index was up 0.2% overall but the core (ex food and energy) was up 0.3%, higher than expected. Yr/yr CPI overall +3.6% and yr/yr core +1.5%. Some concern that inflation is getting into the system but like yesterday's stock market rally, unlikely inflation is a threat.
One month ago when the NY Empire manufacturing index was released it was the beginning of a selling binge in stock markets as it was weaker than markets were expecting; a few days later the Philadelphia Fed business index was reported and it too shocked with its weakness. At 8:30 this morning the June Empire State once again shocked; its overall index was expected at 13.0 frm 11.9 in May; it crashed to -7.79 (any index in the series under zero is considered contraction), the index hasn't been negative for over a year and adds concern again about the economic growth. The sub-components in the data were equally week; new orders component fell to -3.61 frm +17.19 implying orders were negative in the month; the employment index fell to 10.2 frm 24.7 a big drop and the prices pd component at 56.12 frm 69.89 on lower energy costs. NY isn't a serious manufacturing state but is it a precursor to the Philly Fed report tomorrow?
At 9:15 May industrial production was reported up 0.1% against forecasts of +0.2%; May capacity utilization was expected at 77% it was unchanged from April at 76.7%. Both were generally in line with market forecasts.
The MBA weekly mortgage applications out early this morning. Home loan applications rose to the highest level in three months during the week ended June 10, due to pumped-up refinancing demand as the 30-year fixed mortgage rate fell to 4.51%. The Mortgage Bankers Association's index of loan applications rose 13%, with refis jumping 16.5% and purchase-loan requests advancing 4.5%. Refis accounted for 70% of mortgage applications.
It is getting rather mundane to continue monitoring the Greek tragedy, not like Homer but still like a broken record. Greek government bonds led declines by securities from Europe’s most indebted countries as the region’s finance ministers failed to reach agreement on another financial rescue for the nation while avoiding a default.
At 9:30 the DJIA opened down 110 points after increasing 123 yesterday. The 10 yr and mortgages were better at 9:30 but not as firm as we would like given the weak data and the soft open in stocks. Yesterday the 10 yr note closed above its 20 day average for the first time since April 15th, although it is up some this morning it hasn't been able to push back below its 20 day on the yield chart. The 9 day relative strength index is back above 50 on the 10 yield, slightly bearish. We continue to hold our bullish near term outlook for now but the foundation is not as firm now as it has been over the past month. Yesterday and so far this morning lenders are not pricing directly to what the MBS market is doing, most all lenders are worsening price more than what markets are doing.
The final data point today at 10:00; the NAHB housing market index, expected at 16 fell to 13, the lowest since Sept 2010. After four months at 16 the decline is yet once again another unnecessary reminder that until the housing sector gets some attention from regulators and politicians the economic outlook will continue to be soft.