August 17th, 2011 7:27 AM by Lehel S.
Yesterday the bond and mortgage markets improved, the stock market declined; on Monday the bond and mortgage markets declined while the stock market rallied. This morning markets continue their now almost predictable moves; since yesterday was a down day for stocks, today is likely an up day and will keep mortgage prices lower. It is becoming a trend; whatever markets do one day, the next day will be the opposite. Meanwhile mortgage lenders continue to set prices that don't always follow the actual market to control flow. Some lenders appear to be unable to keep up with the increased volume and price defensively.
July producer price index at 8:30 was a little stronger than expected; overall PPI increased 0.2% but the core, ex food and energy expected up 0.2% increased 0.4%, Yr/yr overall PPI +7.2% and yr/yr core +2.5%. Treasuries and mortgage markets didn't show any reaction to the hotter inflation core rate. With the US and global economies sluggish there is little concern that inflation will take hold. I am somewhat surprised that the bond market didn't react to the increase on the core inflation rate at 2.5% yr/yr, that is the level of the Fed's target range for the core.
European stocks are little changed, paring earlier losses after German Chancellor Angela Merkel and French President Nicolas Sarkozy yesterday rejected an expansion of the region’s rescue fund and rebuffed calls for joint euro borrowing. Asian shares and U.S. index futures are doing a little better this morning in pre-market trading, at 9:00 the DJIA was up 22 points but had backed off better levels seen at 8:00 am.
At 9:30 the DJIA opened +34, the 10 yr note +1/32 at 2.22% and mortgage prices +2/32 (.06 bp) frm yesterday's close. At 9:15 mortgage prices were down 1.32 (.03 bp). By 10:00 stock indexes are moving higher (+91 on the DJIA), the 10 yr note -4/32 and mortgage prices +1/32 (.03 bp).
At 7:00 this morning the weekly MBA mortgage applications. The ongoing drop in interest rates is driving refinancing demand higher but, unfortunately, has yet to drive up demand for home purchases. The refinancing index extended its run of jumps in the August 12 week with an 8.0% gain after a 30% increase last week. The purchase index continues to show weakness, down a very steep 9.1%. The rate for 30-year mortgages fell five basis points in the week to 4.32% with the 15-year rate also down five basis points, to 3.47%; a new low rate. Consumers still not stepping up to buy, very low prices and interest rates have yet to show and positive impact in the housing sector. After the Washington clown act over the debt ceiling and spending cuts, consumer sentiment took a dip. Job insecurity continues, debt deleveraging by consumers is continuing.
Pres Obama will make a Labor Day speech calling on Congress for more money to increase employment. The president also will call for long-term cuts beyond the $1.5 trillion that Congress charged a 12-member bipartisan “super- committee” of lawmakers to trim. His plan will likely have a mix of tax cuts and infrastructure spending and will include proposals beyond the ideas that he has mentioned on his current Midwest bus tour, such as extending a payroll tax cut for workers and unemployment insurance benefits. In addition to tax cuts and infrastructure spending, Obama will offer proposals targeted for the long-term unemployed. The dollar amount of the additional long-term deficit reduction measures will exceed the cost of the new short-term spending that he will propose. On his bus tour the president outlined a number of measures that he wants Congress to approve, including renewing a payroll tax cut for workers, revamping the patent process, approving free-trade deals and setting up a so-called infrastructure bank to help fund construction projects such as road-building.