|Some improvement yesterday in the MBS trading; this morning the early activity prices slightly lower at 8:30. The 10 yr note yield up 2 bps from yesterday to 2.01%, US stock indexes early traded a little better after the DJIA climbed 110 points and is edging closer to the 18K level on the DJIA; the S&P also close to all-time highs. At 9:30 the DJIA opened +13, NASDAQ +13, S&P +1; the 10 at 2.00% +1 bp and 30 yr MBSs at 9:30 +2 bp from yesterday’s close and up 24 bps from 9:30 yesterday.
A little better economic news for Europe this morning. Germany leading the way for better GDP growth; in Q4 European Union’s statistics agency said Friday the combined gross domestic product of the 18 countries that then shared the euro was 0.3% higher in the fourth quarter than in the third; forecasts called for 0.2% growth. On an annualized basis, the economy grew by 1.4%, a much weaker performance than the 2.6% rate of growth recorded by the U.S. during the same period. Gross domestic product in Germany was 0.7% higher in the fourth quarter than the third; a huge increase from +0.1% in Q3. Even Greece showed growth in 2014; up 0.8% from 2013, the first time since 2008 where that has happened. Europe’s stock markets on course for a new 7 yr high. Not much reaction to the better data, deflation is still going to drag down Europe’s growth.
Greece is close to a deal to fend off bankruptcy and debt default. One of those moving targets, back and forth until a deal gets done; yesterday it was looking hopeless, today not so much. In the Ukraine the brokered cease fire isn’t as strong as what participants wanted (France and Germany). Angela Merkel saying, it offered “a glimmer of hope, no more and no less.”. So far Ukraine and Greece have had little effect on US or global markets compared to 10 months ago.
Jan import prices reported at 8:30 declined 2.8% from Dec, the largest decrease since Dec 2008. Compared with one year earlier, prices were down 8%, the biggest 12-month fall since September 2009. Declining oil prices leading the decline, crude also pulling most other commodities down with it. Crude prices are down by roughly half since June. Export prices dropped 2% from a month earlier, the biggest fall since October 2011. Industrial supplies, which include petroleum-related products, were the biggest drag. Lower prices adding to downward pressure on inflation. The PCE (personal consumption expenditures) the Fed’s favorite inflation gauge yr/yr up just 0.7%, it is the lowest inflation read since 2009.
Good news for new home purchases; the Builder Application Survey showed that mortgage applications for new homes climbed 29% in January relative to December, not accounting for seasonal adjustments. New-home sales, as estimated by the Washington-based association, hit a seasonally adjusted rate of 530,000 units in January, a marked 29.6% improvement from December’s rate of 409,000. The report is sponsored by the MBA. Conventional loans represented a majority of loan applications with 67.2%. Federal Housing Administration loans made up 18.2% of the total, while Veteran Affairs loans and RHS/USDA loans contributed 13.4% and 1.1%, respectively.
The last data point this week, a week with very little domestic data, the U. of Michigan consumer sentiment index, expected at 98.5 from 98.1.
Next week, markets will be closed on Monday for President’s Day. After this week with not much data, next week will include data on the housing sector, Jan PPI, the FOMC minutes from the Dec 17th meeting, and it is the week prior to Yellen’s Congressional testimony. Today the interest rate markets should be slightly better because of the three day weekend with Europe, Ukraine and Greece are all questionable now. The fixed income markets are expected to increase this year, just as rates were expected to increase last year (rates fell last year as you know); no inflation for fixed income investments to worry about and a good place to park money should hold rates from increasing much. We still believe we have one more rally left in the bond and mortgage markets, however the present situation is bearish. The MBS markets, thinly traded, have been volatile during the day.
PRICES @ 10:00 AM
10 yr note: -6/32 (18 bp) 2.00% +1 bp
5 yr note: -4/32 (12 bp) 1.52% +3 bp
2 Yr note: -1/32 (3 bp) 0.64% +2 bp
30 yr bond: -20/32 (62 bp) 2.61% +3 bp and +5 bp frm yesterday’s 30 yr auction
Libor Rates: 1 mo 0.171%; 3 mo 0.258%; 6 mo 0.378%; 1 yr 0.664%
30 yr FNMA 3.0 Mar: @9:30 101.91 +2 bp (+24 bp frm 9:30 yesterday)
15 yr FNMA 3.0: @9:30 104.93 +5 bp (+22 bp frm 9:30 yesterday)
30 yr GNMA 3.0: @9:30 102.81 +2 bp (+21 bp frm 9:30 yesterday)
Dollar/Yen: 118.94 -0.17 yen
Dollar/Euro: $1.1407 +$0.0004
Gold: $1229.10 +$8.40
Crude Oil: $52.71 +$1.50
DJIA: 18,004.71 +32.33
NASDAQ: 4867.43 +9.82
S&P 500: 2091.64 +3.39