San Diego Home Mortgage Blog

 7:56:46 AM

Begin the day by floating rate locks; however with $112B of supply out there and no assurance the equity markets will actually roll over for more than a day, and lastly the FOMC meeting conclusion on Wednesday, we are leery of the uncertainty and prospect of higher prices. That said, technically the rate markets continue to hold their key moving averages and support levels.

Rate markets opened better this morning with the stock index futures trading weaker. At 8:30 the 10 yr note +12/32 3.44% -4 BP, mortgage prices +6/32 and the DJIA -57. Global stock markets were weak as many currently are re-thinking the levels to which global stocks have risen in the face of what will be considered a slow economic recovery. It is on again, off again with the equity markets; one day its pedal to the metal, the next its bullish but maybe too much too soon. In the end, so far there has been no sustained selling in the US or any other bourse; on any dips buying cuts off declines. At 9:00 the DJIA -57, 10 yr note +11/32 and mortgage prices +7/32. At 9:30 the DJIA opened -68. the 10 yr +11/32 and mortgage prices +6/32; (see below for 10:10 levels)

This week supply and the FOMC meeting are the dominate events. August existing and new home sales and weekly jobless claims are the key data points. Treasury will borrow $112B in 2,5 and 7 yr notes.

At 10:00 this morning August leading economic indicators, expected to be +0.7%, were +0.9%, July LEI revised to +0.9% frm +0.6%;the 5th straight month LEI has increased; LEI is a read that provides the economic outlook six months out and is a compilation of six other data reports. Generally LEI has little direct impact on the bond and stock markets unless it is well off estimates.

This week's Calendar:

        Tuesday;

           10:00 FHFA housing price index (+0.5%)

           1:00 $43B 2 yr note auction

        Wednesday;

           7:00 AM weekly MBA mortgage applications

           1:00 $40B 5 yr note auction

           2:15 FOMC policy statement

       Thursday;

          8:30 weekly jobless claims (+5K to 550K, continuing claims 6.195 mil frm 6.23 mil last week)

         10:00 August existing home sales (+2.0% to 5.35 mil units)

         1:00 $29B 7 yr note auction

        Friday;

         8:30 August durable goods orders (+0.3%, ex transportation orders +1.0%)

         9:55 the U. of Michigan consumer sentiment index (70.5 frm 70.2)

        10:00 August new home sales (+1.5% to 440K units)

The MSCI World Index is trading at its highest valuation since back in 2003; an increasing concern that the equity markets have overrun themselves based on the economic outlook over the next year. The MSCI World measure is valued at 27.7 times profit, the most expensive level since June 2003. The Dow Jones Stoxx 600 Index of European shares slipped for a second day, losing 1.1%. A 55% increase since March 9 has driven valuations on the gauge to 47.4 times reported profit, also the highest level since June 2003. Markets have been here before, looking for a pullback, in each instance when concern has increased for a pullback it has lasted less than three days before new buying pushed key indexes to another new high on the current run up.

This week the leaders of G-20 countries are meeting in Pittsburg to consider the plight of economic and financial reforms. Most of the world is looking to the US to get going with financial reforms and new regulations designed to eliminate in the future any debacle that lead to this present calamity. There is however, something to consider; whatever regs and new regulators are implemented, in the long run they will not work. May work for a couple of decades but in the end the financial markets will find a way (gradually) to get around them and greed will once again cause a serious financial mess. Greed is what keeps markets going and Wall Street in business.

Once again the bellwether 10 yr note has successfully held its key and significant support at the 3.50% area (Friday's close 3.48%); A week ago last Friday (9/11) the 10 yr note tested its key support at 3.38% but couldn't hold it, last week the 10 yr moved back to the support levels. This morning the 10 yr has held again on the weaker open in the stock market, but with supply and the FOMC meeting this week we don't expect rate markets will improve much until at least Wednesday afternoon and only then if investors increase selling and profit-taking on stocks.

Prices @ 10:10 AM

10 yr note:                       101.20 +14/32 3.43% -5 BP

5 yr note:                         99.26 +7/32 2.41% -5 BP

2 Yr note:                        100.01 +2/32 0.97% -3 BP

30 yr bond:                      105.05 +16/32 4.20% -3 BP

Libor Rates:                     1 mo 0.246%; 3 mo 0.289%; 6 mo 0.676%; 1 yr 1.281%

30 yr FNMA 4.5 Nov:       100.12 +9/32 (.28 bp) (+5/32 (.15 bp) frm 10:00 Friday)

15 yr FNMA 4.0 Nov:       100.27 +5/32 (.15 bp) (+4/32 (.12 bp) frm 10:00 Friday)

30 yr GNMA 4.5 Nov:      100.16 +5/32 (.15 bp) (+1/32 frm 10:00 Friday)

15 yr GNMA 4.0 Nov:      101.18 +6/32 (.18 bp) (+4/32 (.12 bp) frm 10:00 Friday)

Dollar/Yen:                      92.33 +0.92 yen

Dollar/Euro:                    $1.4655 -$0.0040 (dollar better)

Gold Dec:                        $1,000.30 -$10.00

Crude Oil Oct:                 $69.92 -$2.12

Goldman-Sachs

Commodity Index:        455.96 -12.91       

DJIA:                              9738.50 -81.70 

NASDAQ:                        2121.61 +11.25

S&P 500:                        1058.76 -9.94