San Diego Home Mortgage Blog

Technically the 10 yr and mortgages are bullish, but fragile. Unless the equity markets explode in a strong rally, we expect the 10 yr note to re-test its resistance at 3.28% (now 3.37%) and mortgage rates to fall another 10 basis points frm present rates.

At 8:00 this morning the 10 yr note +2/32, mtgs unchanged; at 8:30 the 10 +5/32 and mortgages +5/32. At 9:00 the 10 +5/32 and mtgs +3/32, DJIA -20. At 9:30 the DJIA opened -20, 10 yr +3/32 and mortgages at 9:30 ++2/32. (see below for 10:10 levels)

August durable goods orders at 8:30 were weaker than expected, the estimates were for an increase of 0.3% overall and +1.0% when transportation orders are extracted. As released orders were down 2.4% and ex transportation unchanged, July ex transportation orders were revised from +1.1% to +0.9%. Durables is a very volatile series, thus markets tend to think less of it as revisions can change dramatically at times. Nevertheless the decline in orders suggests businesses will likely cut back as the economic recovery is likely to be sluggish and uneven. Durables are defined as orders for goods that last 3 yrs or more. The initial reaction generated selling in the stock index futures markets and a minor increase in prices of mortgages and treasuries; but with August new home sales at 10:00 traders preferred to wait.

At 9:55 the U. of Michigan consumer sentiment index, expected unchanged at 70.2, jumped to 73.5 frm 70.2 two weeks ago and from 65.7 at the end of August. The initial reaction flipped the DJIA from -7 to +16 and brought treasuries and mortgages back to unchanged from +4/32 readings.

At 10:00 August new home sales, early this week markets were looking for and increase of 1.5%, this morning the estimates increased to +2.7%. As reported sales were up 0.& to 429K units annualized. July sales were revised lower, from +9.6% to +6/5%; the median sales price $195.200 -11.7% frm August 2008. The equity markets took a look and ignored the lower sales, but treasuries and mortgages held in the knee jerk reaction.

G-20 countries are meeting in Pittsburg today, concluding at 4:00 PM with their statement; expect a lot of platitudes that coordination and agreements have been made on financial reforms to be worked out in the coming months. It used to be G-8, the world's largest and most mature economies, the G-20 will now replace it, adding emerging market economies as key economies in the future and recognizing that the world needs all economies involved in coordinated efforts for continued global growth. Still the big dogs will likely to continue to wield the big sticks, but recognizing the importance of emerging economies as forces to be considered.

Kevin Warsh, a Fed Governor, is out today commenting in contrast to what the FOMC meeting statement said; that the Fed may have to begin "normalization" of policy well before it is obvious in the markets. Meaning that the Fed may begin withdrawing from easy momentary policy before what markets have been assuming and before the unemployment levels peak. Just what the markets need now, more confusion.

The rest of the day will focus on how equities perform. Two days ago there was a technical reversal on the DJIA suggesting the possibility that the long awaited retracement in stocks may be starting. So far anytime equity markets have looked as if they were softening, it didn't longer than a couple of sessions before buyers stepped up and drove indexes to another new high. Traders that have tried to fade the rock hard stock markets have a lot of red ink in their accounts; to the extent the fear factor in shorting the stock market may continue to sustain these levels.

PRICES @ 10:10 AM

10 yr note: 102.03 +2/32 3.37% -1 BP

5 yr note: 99.30 -2/32 2.39% +2 BP

2 Yr note: 100.01 -2/32 0.98% +4 BP

30 yr bond: 105.31 +10/32 4.15% -2 BP

Libor Rates: 1 mo 0.246%; 3 mo 0.282%; 6 mo 0.636%; 1 yr 1.237%

30 yr FNMA 4.5 Nov: 100.16 -3/32 (+3/32 (.09 bp) frm 10:00 yesterday)

15 yr FNMA 4.0 Nov: 100.05 -2/32 (+5/32 (.15 bp) frm 10:00 yesterday)

30 yr GNMA 4.5 Nov: 100.24 -2/32 (+3/32 (.09 bp) frm 10:00 yesterday)

15 yr GNMA 4.0 Nov: 101.27 -2/32 (+4/32 (.12 bp) frm 10:00 yesterday)

Dollar/Yen: 90.25 -0.99 yen

Dollar/Euro: $1.4675 unch

Gold Dec: $991.70 -$7.20

Crude Oil Nov: $66.79 +$0.90

Goldman-Sachs

Commodity Index: 442.62 +0.93

DJIA: 9725.28 +17.84

NASDAQ: 2105.62 -1.99

S&P 500: 1052.97 +2.19