June 8th, 2011 8:45 AM by Lehel S.
Stocks fell in Europe for a sixth day, U.S. index futures declined and the yen strengthened as concern deepened the global recovery may slow. Copper led commodities lower, while oil dropped as OPEC meets. The US stock indexes traded weaker all morning into the open with the DJIA lower; a close lower today will be the first time since 2009 the DJIA fell six days in succession. The bond and mortgage markets benefiting as the economic outlook weakens.
Treasuries and mortgage markets started better, still better but have slid back from levels at 8:30; at 9:30 the DJIA opened flat after trading weaker n pre-market trade. The 10 yr note at 9:30 +5/32 at 2.98% and mortgage prices +4/32 (.12 bp).
OPEC was widely expected to announce production increases today, it didn't; in the meantime with the economies in Europe and the US showing signs of stalling crude is lower today. “There is still much uncertainty about the strength of the world economic recovery,” Mohammad Aliabadi, the acting Iranian oil minister and current OPEC president, said in a speech in Vienna before the group announces its decision. OPEC was expected to raise its production quota for the first time in almost four years to help replace lost Libyan supplies and meet growth in demand later this year, a Gulf delegate said yesterday. The group last collectively agreed a production increase on Sept. 11, 2007, setting a quota of 27.253 mil barrels a day. That the group didn't increase production is evidence that there is serious divergent opinions within OPEC. The announcement came at 9:20 am this morning, crude oil was down $0.60 then spiked up $0.60.
It is another day with no direct economic releases; at 2:00 the Fed will release its Beige Book, the Fed staff's report on the economy in all 12 Fed districts. A lot of detailed specifics but generally about what markets already have discounted.
Mortgage applications decreased 4.0% from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending May 27, 2011. The Refinance Index decreased 5.7% from the previous week. The seasonally adjusted Purchase Index was essentially unchanged from one week earlier. The four week moving average for the seasonally adjusted Market Index is up 3.0%. The four week moving average is up 1.1% for the seasonally adjusted Purchase Index, while this average is up 3.8% for the Refinance Index. The refinance share of mortgage activity decreased to 65.7% of total applications from 66.8% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.2% from 5.8% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.58% from 4.69%, with points increasing to 1.01 from 0.69 (including the origination fee) for 80% loans. The 30-year rate is the lowest since November 2010. The average contract interest rate for 15-year fixed-rate mortgages remained unchanged at 3.78%, with points increasing to 1.07 from 1.04 (including the origination fee) for 80% loans.
The bond and mortgage markets will likely hold steady until 1:00 when treasury auctions $21B of 10 yr notes, re-opening the 10 yr note issued last month. Yesterday's 3 yr auction saw good demand, today's 10 yr is more crucial to mortgage rates. Strong demand will support rates but weak bidding will pull interest rates up a little. The auction and how equity markets act through the rest of the day will drive the bond market. The 10 yr note trading at 3.00% area, critical level technically and psychologically.