Daily Market Analysis

Posted by on Jan 21, 2015 in News | No Comments
Daily Market Analysis



Last night the President did his State of the Union message; you can read all about it in other commentaries and in the print media but as far as markets are concerned there was nothing of importance for the immediate consumption. Treasuries and MBSs opened abut unchanged this morning, early trade in stock indexes were slightly lower from yesterday’s generally unchanged levels.

At 8:30 the lone data point today; Dec housing starts and permits. Starts were expected up 1.25%, as reported starts increased 4.5% to 1.089 mil units. Nov starts were revised higher, from 1.028 mil to 1.043 mil making the increase in Dec even better. Dec building permits were thought to be up 2.4%, permits declined 1.9% to 1.060. As with starts Nov permits were revised better, from 1.035 mil to 1.052 mil. Dec. strength was in the single-family component. Housing starts rebounded 4.4% after declining 4.5% in November. Expectations were for a 1.041 million pace for November. The 1.089 million unit pace was up 5.3% on a year-ago basis. Single-family permits rose 4.5% while multifamily permits fell 11.8%.

MBA said mortgage applications increased again; applications increased 14.2% from one week earlier. The Refinance Index increased 22% from the previous week. The seasonally adjusted Purchase Index decreased 3% from one week earlier. Conventional refinance applications increased 21% relative to the previous week, while government refinances increased 29%. The increase in government refinances was driven by a 57% surge in applications for FHA loans, which also boosted the FHA share of refinance applications to 5.2% from 4.1% the prior week. The refinance share of mortgage activity increased to 74% of total applications, the highest level since May 2013, from 71% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.4% of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.80%, the lowest level since May 2013, from 3.89%, with points increasing to 0.29 from 0.23 (including the origination fee) for 80% loan-to-value ratio (LTV) loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) decreased to 3.86%, the lowest level since May 2013, from 3.88%, with points remaining unchanged at 0.23 (including the origination fee) for 80% LTV loans.

Tomorrow will be a watershed day for the European Central Bank, as it decides whether to launch large-scale government bond purchases, known as quantitative easing. Will the ECB sets an explicit target amount for QE, or leaves it vague? So far since the financial collapse in 2008 the ECB has disappointed each time there was a stimulus of any kind presented to markets. With each attempt to fight the debt problems using stringent austerity policies it wasn’t enough and southern Europe’s economies continued to falter. In the last three years global markets have been disappointed on every ECB decision. The WSJ just said the discussion going on is for $700B of purchases debt over the next year at $58B a month.

Greek elections three days after the ECB meets that could determine the country’s future within the Eurozone. The ECB probably wouldn’t want to buy Greek debt under these uncertainties. The bank could get around this by setting a minimum, investment-grade threshold that would leave Greece and Cyprus out for now. If the current Greek ruling party loses there is a fear that Greece may leave the EU. Greece can’t handle the austerity put on it by the ECB, its debt is choking the country; non-performing loans (90 days), $89.4B The economy has shrunk 25% since its peak in mid-2008.

The DJIA opened -96, NASDAQ -16, S&P -7. The 10 at 9:30 -1 bp to 1.79%; 30 yr MBS price -3 bp.

The session is starting with high volatility, no driving news today so far. The technical picture still looks good but a corrective move back to 1.90% for the 10 yr (1.78% currently) cannot be ruled out. Not happening today but tomorrow and again next Monday on the Greek elections may pose high hurdles to overcome. The 10 and MBSs are both overbought in the near term. We have support on the 10 yr at 1.90% and 102.00 for Feb FNMA coupon -60 bp from the present price.

PRICES @ 10:10 AM

  • 10 yr note: +4/32 (12 bp) 1.78% -1 bp
  • 5 yr note: +1/32 (3 bp) 1.1,28% unch
  • 2 Yr note: unch 0.50% unch.
  • 30 yr bond: +17/32 (53 bp) 2.36% -2 bp
  • Libor Rates: 1 mo 0.168%; 3 mo 0.256%; 6 mo 0.355%; 1 yr 0.611%
  • 30 yr FNMA 3.0 Feb: @9:30 102.61 -3 bp (-8 bp from 9:30 yesterday)
  • 15 yr FNMA 3.0 Feb: @9:30 104.62 +3 bp (-7 bp from 9:30 yesterday)
  • 30 yr GNMA 3.0 Feb: @9:30 102.90 -5 bp (-33 bp from 9:30 yesterday)
  • Dollar/Yen: 117.48 -1.34 yen
  • Dollar/Euro: $1.1602 +$0.0052
  • Gold: $1301.70 +$7.50
  • Crude Oil: $47.54 +$1.11
  • DJIA: 17,456.73 -58.50
  • NASDAQ: 4652.77 -2.08
  • S&P 500: 2022.08 -0.47

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