Friday, February 27, 2015
Capital Markets Update
By Louis S. Barnes Friday, February 27, 2015
Mortgage interest rates improved this past week as economic data was mixed. Economic data stronger than expected included the December Case Shiller 20 City Home Price Index, January New Home Sales, January Core CPI, January Durable Goods Orders, the December FHFA Home Price Index, the second look at Q4 GDP, and the University of Michigan Consumer Sentiment Index. Q4 GDP growth was revised down to 2.2% but higher than the 2.1% expected. Economic data weaker than expected included January Existing Home Sales, the February Consumer Confidence Index, weekly jobless claims, January CPI, January Durable Goods Orders excluding transportation orders, the February Chicago Purchasing Managers Index, and January Pending Home Sales. Also of note, the Treasury auctioned $90 billion of 2 Year Notes, 5 Year Notes, and 7 Year Notes, which were met with somewhat soft demand. Fed Chair Yellen testified before the Senate and House and indicated that the Fed would be patient with any rate increase. The Fed would like to be confident that the economic recovery will continue and that inflation will increase over time.
The Dow Jones Industrial Average is currently at 18,189, up slightly on the week. The crude oil spot price is currently at $48.95 per barrel, down over $1 per barrel on the week. The Dollar strengthened versus the Yen and Euro on the week.
Next week look toward Monday’s Personal Income and Outlays and ISM Manufacturing Index, Thursday’s Jobless Claims, and Friday’s February employment report and International Trade report as potential market moving events.
Mortgage interest rates improved this past week as economic data was mixed. Economic data stronger than expected included the December Case Shiller 20 City Home Price Index, January New Home Sales, January Core CPI, January Durable Goods Orders, the December FHFA Home Price Index, the second look at Q4 GDP, and the University of Michigan Consumer Sentiment Index. Q4 GDP growth was revised down to 2.2% but higher than the 2.1% expected. Economic data weaker than expected included January Existing Home Sales, the February Consumer Confidence Index, weekly jobless claims, January CPI, January Durable Goods Orders excluding transportation orders, the February Chicago Purchasing Managers Index, and January Pending Home Sales. Also of note, the Treasury auctioned $90 billion of 2 Year Notes, 5 Year Notes, and 7 Year Notes, which were met with somewhat soft demand. Fed Chair Yellen testified before the Senate and House and indicated that the Fed would be patient with any rate increase. The Fed would like to be confident that the economic recovery will continue and that inflation will increase over time.
The Dow Jones Industrial Average is currently at 18,189, up slightly on the week. The crude oil spot price is currently at $48.95 per barrel, down over $1 per barrel on the week. The Dollar strengthened versus the Yen and Euro on the week.
Next week look toward Monday’s Personal Income and Outlays and ISM Manufacturing Index, Thursday’s Jobless Claims, and Friday’s February employment report and International Trade report as potential market moving events.
Friday, February 20, 2015
Capital Markets Update
By Louis S. Barnes Friday, February 20, 2015
Long-term Treasurys are sliding down in yield again, holding low-fee mortgages in the high-threes.
This improvement has been caused by several things, all reinforcing each other, and is likely to continue. However, in the background lies an enormous contradiction clearly troubling long-term markets.
First things first. Way back in my ill-spent youth, during an exciting day I asked a veteran trader why bond prices were rising and rates falling. Dead pan, no grin before or after: “More buyers than sellers.” The herd… always think first of the herd.
Despite unanimous forecasts from important people that rates would soon rise, the 10-year T-note 2.30% at year-end in the next five weeks crashed to 1.65%. A violent move begets a violent reversal, which crested this week at 2.15% and has now re-reversed to 2.06% (see below!). The 2.15% crest held a year-long downtrend.
Most of us are still arguing about the cause of the big January move in the first place. The dominant explanation: bonds followed the price of oil. No matter what stimulus lower prices may bring (looks thin to me), lower oil means lower inflation. For how long? Oil forecasts cover a range from $10 (silly work by a better man, Gary Shilling) to a rapid run back to $80 (several investment-pickers who should know better). The likelihood is a several-year centerline near $60, maybe with twenty bucks worth of spectacular volatility either way. That’s enough to hold inflation down.
The Fed is of course the source of contradiction, desperate to get above zero for fear of financial bubbles, but every bit as fearful of pulling the plug. It knows that oil does crazy things up and down, and tries to strip that out by looking at “core” rates of inflation. However, this oil drop is so big and durable that it is already pulling down prices of other things (paint, anything carried by a truck, fertilizer…). Also, every economic competitor on the planet has devalued its currency versus ours, which pushes down on global dollar prices of everything, including wages.
Thus the Fed’s meeting minutes released on Wednesday: “An earlier tightening would increase the likelihood that the Committee might be forced by adverse economic outcomes to return the federal funds rate to its effective lower bound.” The Fed is fully aware that premature or overdone tightening, even .25%, could get them right back to 0%, the situation they are desperate to escape.
Off into the murky metaphysics of the Fed… all central bankers want to be in front, pre-emptive. This time, deeply unsettling to them, the proper course may be to follow wages and inflation as they rise. If they rise, heh-heh.
Then the geopolitical rundown. As I am writing, noon on Friday, the Germans have allowed another Band-Aid to Greece, keeping its cash supply going but fixing nothing. The 10-year T-note instantly jumped from 2.06% to 2.10%. Buying time is better than running out, but no big party. Break down Greece into two pieces, financial and political. A Grexit would — will — roil markets and push down interest rates. But given five years to prepare, especially banks and central banks have circuit breakers in place.
The big risk is political. Not that a Grecian escape would embolden Italy to do likewise, but instability. Many places many times, severe economic repression breeds political extremism: Europe in the 1930s, ISIS today, and the dangerous lefties who won the Greek election.
Which brings us to Russia. For reasons I don’t understand, markets have stopped trading on news from Ukraine. Thus far sanctions seem only to have cornered Vladimir the Rat. The hunch here last week that he had used the Minsk conference to pull the pants off Merkel and Hollande… correct. Perhaps markets sense that Ukraine has been written off, and so they do also.
The most important thing is the trajectory of the US economy, and its breadth. That is, if we continue to improve, how inclusive the improvement. If wages begin to rise for all, then the Fed should tighten, and we should be glad to see it happen.
Long-term Treasurys are sliding down in yield again, holding low-fee mortgages in the high-threes.
This improvement has been caused by several things, all reinforcing each other, and is likely to continue. However, in the background lies an enormous contradiction clearly troubling long-term markets.
First things first. Way back in my ill-spent youth, during an exciting day I asked a veteran trader why bond prices were rising and rates falling. Dead pan, no grin before or after: “More buyers than sellers.” The herd… always think first of the herd.
Despite unanimous forecasts from important people that rates would soon rise, the 10-year T-note 2.30% at year-end in the next five weeks crashed to 1.65%. A violent move begets a violent reversal, which crested this week at 2.15% and has now re-reversed to 2.06% (see below!). The 2.15% crest held a year-long downtrend.
Most of us are still arguing about the cause of the big January move in the first place. The dominant explanation: bonds followed the price of oil. No matter what stimulus lower prices may bring (looks thin to me), lower oil means lower inflation. For how long? Oil forecasts cover a range from $10 (silly work by a better man, Gary Shilling) to a rapid run back to $80 (several investment-pickers who should know better). The likelihood is a several-year centerline near $60, maybe with twenty bucks worth of spectacular volatility either way. That’s enough to hold inflation down.
The Fed is of course the source of contradiction, desperate to get above zero for fear of financial bubbles, but every bit as fearful of pulling the plug. It knows that oil does crazy things up and down, and tries to strip that out by looking at “core” rates of inflation. However, this oil drop is so big and durable that it is already pulling down prices of other things (paint, anything carried by a truck, fertilizer…). Also, every economic competitor on the planet has devalued its currency versus ours, which pushes down on global dollar prices of everything, including wages.
Thus the Fed’s meeting minutes released on Wednesday: “An earlier tightening would increase the likelihood that the Committee might be forced by adverse economic outcomes to return the federal funds rate to its effective lower bound.” The Fed is fully aware that premature or overdone tightening, even .25%, could get them right back to 0%, the situation they are desperate to escape.
Off into the murky metaphysics of the Fed… all central bankers want to be in front, pre-emptive. This time, deeply unsettling to them, the proper course may be to follow wages and inflation as they rise. If they rise, heh-heh.
Then the geopolitical rundown. As I am writing, noon on Friday, the Germans have allowed another Band-Aid to Greece, keeping its cash supply going but fixing nothing. The 10-year T-note instantly jumped from 2.06% to 2.10%. Buying time is better than running out, but no big party. Break down Greece into two pieces, financial and political. A Grexit would — will — roil markets and push down interest rates. But given five years to prepare, especially banks and central banks have circuit breakers in place.
The big risk is political. Not that a Grecian escape would embolden Italy to do likewise, but instability. Many places many times, severe economic repression breeds political extremism: Europe in the 1930s, ISIS today, and the dangerous lefties who won the Greek election.
Which brings us to Russia. For reasons I don’t understand, markets have stopped trading on news from Ukraine. Thus far sanctions seem only to have cornered Vladimir the Rat. The hunch here last week that he had used the Minsk conference to pull the pants off Merkel and Hollande… correct. Perhaps markets sense that Ukraine has been written off, and so they do also.
The most important thing is the trajectory of the US economy, and its breadth. That is, if we continue to improve, how inclusive the improvement. If wages begin to rise for all, then the Fed should tighten, and we should be glad to see it happen.
Friday, February 13, 2015
Capital Markets Update
By Louis S. Barnes Friday, February 13, 2015
Mortgage interest rates increased slightly this past week as new economic data was limited. Of note, the December JOLTS Job Openings Report and the January Treasury Budget were better than expected. Economic data weaker than expected included weekly jobless claims, January Retail Sales, and December Business Inventories. Retail Sales in December and January fell the most in back to back months since 2008. January Import and Export Prices fell, largely driven by declining oil prices. The Treasury auctioned $64 billion in 3 Year Notes, 10 Year Notes, and 30 Year Bonds which were met with okay demand. In Europe, Q4 GDP increased 0.3%, slightly more than the 0.2% expected. Markets continue to monitor debt negotiations between Greece and the EU as well as negotiations between Russia and Ukraine regarding a cease fire.
The Dow Jones Industrial Average is currently at 18,007, up over 180 points on the week. The crude oil spot price is currently at $52.86 per barrel, up slightly on the week. The Dollar weakened versus the Euro and Yen on the week.
Next week look toward Wednesday’s Housing Starts, Producer Price Index (PPI), Industrial Production, and FOMC Minutes and Thursday’s Jobless Claims and Philadelphia Fed Survey as potential market moving events. All markets are closed on Monday for Presidents’ Day.
Mortgage interest rates increased slightly this past week as new economic data was limited. Of note, the December JOLTS Job Openings Report and the January Treasury Budget were better than expected. Economic data weaker than expected included weekly jobless claims, January Retail Sales, and December Business Inventories. Retail Sales in December and January fell the most in back to back months since 2008. January Import and Export Prices fell, largely driven by declining oil prices. The Treasury auctioned $64 billion in 3 Year Notes, 10 Year Notes, and 30 Year Bonds which were met with okay demand. In Europe, Q4 GDP increased 0.3%, slightly more than the 0.2% expected. Markets continue to monitor debt negotiations between Greece and the EU as well as negotiations between Russia and Ukraine regarding a cease fire.
The Dow Jones Industrial Average is currently at 18,007, up over 180 points on the week. The crude oil spot price is currently at $52.86 per barrel, up slightly on the week. The Dollar weakened versus the Euro and Yen on the week.
Next week look toward Wednesday’s Housing Starts, Producer Price Index (PPI), Industrial Production, and FOMC Minutes and Thursday’s Jobless Claims and Philadelphia Fed Survey as potential market moving events. All markets are closed on Monday for Presidents’ Day.
Friday, February 6, 2015
Capital Markets Update
By Louis S. Barnes Friday, February 6, 2015
Mortgage interest rates increased this past week as today’s employment report for January was stronger than expected. January Non-Farm Payrolls increased by 257k on expectations that they would increase by 230k. November and December Non-Farm Payrolls were revised upward by 147k. Private Payrolls increased by 267k on expectations that they would increase by 229k. Average Hourly Earnings increased by 0.5%, its strongest increase since November of 2008. The unemployment rate increased to 5.7% from 5.6% mainly due to 700k more people entering the job market. As a result, the Fed may look to increase short term interest rates sooner than anticipated. Other economic data was mixed. Economic data stronger than expected included the January ISM Services Sector Index and weekly jobless claims. Economic data weaker than expected included December Personal Spending, December Construction Spending, the January ISM Manufacturing Index, December Factory Orders, January ADP Private Jobs, and the December Trade Balance report. Personal Spending declined the most in five years.
The Dow Jones Industrial Average is currently at 17,919, up over 700 points on the week. The crude oil spot price is currently at $51.25 per barrel, up over $3 per barrel on the week. The Dollar weakened versus the Euro and strengthened versus the Yen on the week.
Next week look toward Thursday’s Jobless Claims and Retail Sales and Friday’s Consumer Sentiment Index as potential market moving events. Also, the Treasury will auction 3-Year Notes, 10-Year Notes, and 30-Year Bonds.
Mortgage interest rates increased this past week as today’s employment report for January was stronger than expected. January Non-Farm Payrolls increased by 257k on expectations that they would increase by 230k. November and December Non-Farm Payrolls were revised upward by 147k. Private Payrolls increased by 267k on expectations that they would increase by 229k. Average Hourly Earnings increased by 0.5%, its strongest increase since November of 2008. The unemployment rate increased to 5.7% from 5.6% mainly due to 700k more people entering the job market. As a result, the Fed may look to increase short term interest rates sooner than anticipated. Other economic data was mixed. Economic data stronger than expected included the January ISM Services Sector Index and weekly jobless claims. Economic data weaker than expected included December Personal Spending, December Construction Spending, the January ISM Manufacturing Index, December Factory Orders, January ADP Private Jobs, and the December Trade Balance report. Personal Spending declined the most in five years.
The Dow Jones Industrial Average is currently at 17,919, up over 700 points on the week. The crude oil spot price is currently at $51.25 per barrel, up over $3 per barrel on the week. The Dollar weakened versus the Euro and strengthened versus the Yen on the week.
Next week look toward Thursday’s Jobless Claims and Retail Sales and Friday’s Consumer Sentiment Index as potential market moving events. Also, the Treasury will auction 3-Year Notes, 10-Year Notes, and 30-Year Bonds.
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