Tuesday, November 21, 2017

Mortgage Rates Steady - Stock Market Rallys Again This Morning

Mortgage rates are holding steady in spite of the stock market rally again this morning.  The ECB is saying it is likely to make just small adjustments to its monetary guidance next rather than any major changes. The comments pushed Europe’s stocks higher and supported a strong response in the US markets.

Stocks also getting a boost that AT&T/Time Warner merger will win over the Justice Dept. saying it will block the merger. Earnings from retailers are also adding to the stock market improvement. Trade volumes as I have mentioned the last few days are thin this week, which adds to the price volatility. On Monday we said I stated that I did not expect much movement in markets this week – but it looks like I was wrong looking at the stock indexes in the past few days. Yearend buying is said to be moving markets higher, and of course there is little debate now that Congress will pass a tax cut bill, possibly before the end of the year. President Trump yesterday said he would not oppose keeping the penalty for those who do not purchase health care insurance. The Senate version would eliminate the penalty.

Europe’s bond markets improved today and is following through in the US. Germany’s political situation in turmoil now; Angela Merkel failed to establish a coalition government after her party lost in the September elections. The strongest economy in Europe and the leader politically is now unsettled leading to some safe moves into sovereign debt.

The only data today was October existing home sales expected at 5.44 mil, up from 5.39 mil originally reported. Sales were at 5.48 mil, but September revised from 5.39 mil to 5.37 mil. Sales in October +2.0% from the revised September data; yr./yr. sales -0.9%. Strength shows for both single-family resales, up 2.1% to a 4.870 million rate and up 1.7% for condos to a 610,000 rate. Discounting was limited in October, with the price median down only 0.2% to $247,000 for 5.5% year-on-year appreciation. Supply is yet again a negative for resales, falling 3.2% to 1.800 million homes on the market. On a sales basis, supply is at a very thin 3.9 month following five straight readings at 4.2 months.

Technically, the 10yr is still in its two-month range keeping mortgage rates generally unchanged. It was better early this morning, but is currently at 2.36% as we have seen a strong resistance at 2.32%. Even though the stock market is moving, we have been in a very tight range again with mortgage rates and I do not see any changes this week.

Monday, November 20, 2017

Mortgage Rates Movement Tide to Participation in Traders

Mortgage rates moved slightly higher today – which was to be anticipated as usually the case during major holiday weeks.  Here we are at Thanksgiving, and there is generally a certain level of participation that traders and mortgage lenders can count on - participation wanes and the remaining players tend to behave a bit more conservatively.  With fewer players in the game, each trader has a bigger say in the direction rates will move.  If there are more bonds being sold than bought, regardless of the motivation, rates will move higher.  This was the case today.  Things could just as easily go the opposite way tomorrow, but that is not the sort of thing to plan on.  Considering that banks will be less willing to offer lower rates if bond markets improve this week, both risks and rewards are muted when it comes to floating vs locking. Overall, I still am not counting on any major moves as well as I do not believe there will be any significant changes in markets this week.

The tax cuts still the major interest in US and global markets - no Senate vote will happen this week, as Congress is already booking flights out for Thanksgiving.
Janet Yellen tendered her resignation today. Her resignation a normal move ahead of her term expiration in February and effective upon her term expiration. Media reporting it as they should and given Jerome Powell is Trump’s decision it is not market-moving news. “As I prepare to leave the Board, I am gratified that the financial system is much stronger than a decade ago, better able to withstand future bouts of instability and continue supporting the economic aspirations of American families and businesses.” …..“I am confident that my successor as chair, Jerome Powell, is deeply committed to that mission and I will do my utmost to ensure a smooth transition.” Theoretically Yellen could stay on the Board of the Fed until January 2024, but that is unlikely.  

Charlie Manson died yesterday in prison. According to prison officials he died of natural causes.  Czech tennis player Jana Novotna, who won the 1998 Wimbledon championship after falling short in two previous finals, has died at the age of 49 after a long battle with cancer. As you can tell, not much news and nothing that moved markets.

There is an issue that may be brewing in Germany - Angela Merkel failed to form a coalition government after the elections in September. Question now is will she manage to survive as Chancellor. Too early for any assumptions but it is the first time in years it has occurred, and it is causing Germany and Europe a new round of uncertainty. Tomorrow we get October existing new home sales expected.

In summary, it is usually a tough call to lock on a holiday shortened week.  I do not see much upside potential this week.  We are in the lower half of the recent range and it is a short week.  Volume tends to dry up the closer you get to the holiday making the market more susceptible to larger swings in price/yield.  Short term locking looks good.  Longer term I see more bouncing between 2.2 and 2.4 until tax reform takes center stage.  When it does, all bets are off.

Mortgage Rates in Tight Range - Nothing Really Anticipated to Change This Week

Mortgage rates are trending sideways this morning.  Slightly lower prices in MBSs and the 10yr note this morning thus far at 11:00AM, but nothing significant. Interest rates at the long end, including MBSs, have been unchanged for a month with minor blips but not trending either higher or lower. This week, liquidity will thin with the holiday and not much expected on the tax cuts. The House passed its version last week, and last Friday the Senate Finance Committee voted 14-12 in favor of sending the tax bill to the Senate floor. The Senate is expected to vote during the final week of November. Trading activity will begin to thin out by Wednesday noon and only second stringers managing the desks on Friday. Both the bond and mortgage markets will close early Friday.

Yesterday Pres. Trump indicated he would not oppose removing the plan to end the penalty for those who do not buy insurance, one of the keys in Obamacare. Ending the penalty is meeting with resistance from some Senators concerned that if the penalty is removed, many will choose to go without insurance, particularly young people who do not usually have many health issues thus leading to less revenue to cover older citizens. Trump changing his view, adding to the prospects the Senate bill will have less of a hurdle for passage.

This morning, October leading economic indicators, exploded to one of the strongest months we have seen in years. No reaction to the increase.  LEI is a composite of six various monthly reports that as we have noted have been better overall than markets were expecting.

There are two key data points this week - October existing home sales (Tuesday) and October durable goods orders (Wednesday).  Other than those two, markets are focused primarily on the tax cuts. Tax cut plans have and will continue to have, a dominant influence on markets. Tax cuts are a reality; only the details now that must be resolved. Democrats will not vote for any tax cuts - not because they do not think it necessary, all political. Markets concerned about the economy and the impact cuts will have on the economic outlook. Politicians concerned more about the mid-term elections next November.

90% of all trading over the last two months has kept the benchmark 10yr note between 2.40% and 2.30%, mortgage rates also locked in tight ranges. This week is not likely to move rates out of the range. Talks and comments from the White House and Congress over the tax bill(s) will get ink but not likely to have any real changes in rate markets or the stock indexes. The lack of inflation supporting the long end of the curve is making it easy to use the treasury markets as a hedge against anything that may go wrong in equity markets. What's happening overseas could play a more significant than usual part in the movement of mortgage rates this week.

Saturday, November 18, 2017

Mortgage Rates Barely Budged Today

Mortgage rates barely budged today, which was not too surprising considering today's bond market levels were roughly in line with yesterday's.  Movement has been minimal since October with day-over-day change most frequently occurring at the "cost" level.

Stock indexes were lower today as the bond and mortgage markets generally were unchanged on the session. October housing starts, and permits were much stronger than expected this morning. Hurricanes this summer still having influence on economic data, as the increase in housing starts due to the increase in new construction replacing the homes lost and heavily damaged - also the massive fires in California that wiped out many homes pushing starts higher.

Focus still mainly on the tax cuts. It is a given we will have cuts but not so much about how and who will receive the and will the corporate cuts actually help increase growth that is already getting better. Equity markets have mostly discounted the cuts in the rally that has moved the indexes higher over the last three months. The question for the moment in our eye is whether the equity markets have over-shot the tax benefits at present levels. I do not see much wage growth, and inflation remains nil at best.

Next Week’s Calendar - Thursday is a dead day (not just for those turkeys), Wednesday by noon the halls will begin to empty, and Friday is shop ‘til you drop’. The Senate is thought to be voting on its tax bill by Wednesday, but I doubt the vote will occur until the following week. No data on Monday. Tuesday October existing home sales. Wednesday October durable goods orders, Weekly jobless claims, and November consumer sentiment index from U. of Michigan.  We also have the release of the FOMC minutes from the meeting two weeks ago. Thursday closed. Friday stock and bond markets will close early. Next week should be quiet and uneventful even if the Senate does pass its version of taxes that for the most part is already a known by most.

In summary, with next week bringing the Thanksgiving holiday and with no possibility of significant tax reform news (congress is out until the following week), markets will be hard-pressed to find much motivation for movement.  The risky thing about these periods of lighter participation and lower conviction in financial markets is that they can result in unexpected and seemingly unjustified volatility.  Banks also tend to be less aggressive when it comes to offering better rates following bond market improvements.  With this, it generally decreases the benefits of floating in the near term.

Friday, November 17, 2017

Mortgage Rates Improving After Positive Housing Reports

Big improvement in the stock markets yesterday on the news that the House passed its version of tax cuts. This morning, we have seen the key indexes slightly lower. The 10yr yesterday increased to 2.37% on the stock market improvement as MBS prices declined.  However, we have now gone the other way as of 11:00AM, we see the 10yr at 2.34% and MBS positive.
No real change in interest rates at the long end of the curve, including mortgage rates that have been stable, and little changed for over a month now. Tax cuts and better earnings from businesses are continuing to drive equity markets. The lack of inflation is keeping the 10yr note steady - hedge against the possibility of a stock market correction. It has not happened, but as long as those safety moves are not costing anything to the long position holders, investors still willing to hold US long-term treasuries.

The tax-cutting process now in the hands of the Senate that is expected to pass its version next week, but I doubt it will be voted until after Thanksgiving. The details are numerous and tedious the deeper one considers the specifics, but the main battle appears to be the Senate’s willingness to cut deductions for state and local taxes on federal tax returns (SALT). High state and local tax states like the left and right coast and other states likely to be a huge decision. The Senate tax bill would eliminate the deduction for individuals and families of state and local income and sales tax, while capping property tax deductions at $10,000.

The tax cuts working through Congress are expected to lower the production of affordable housing. NAR warning that if the deductions are eliminated, other tax deductions become less valuable. Within the bill, it will end a tax break for private bonds used in affordable housing developers, according to those that score the various parts of the bills. Mortgage Credit Certificates, a tax credit for low- and moderate-income first-time home buyers, would be eliminated. The elimination of the private bond deductions will cut two-thirds of affordable housing over the next 10 years. Limiting the mortgage deduction also likely to be a drag on housing. Private bonds also fund hospitals, roads, charter schools and other needed local needs. The counter-argument is that the lower tax and increased individual and married deductions will offset the cuts. Republicans believe that ending the deductions for private bonds will add $40B of additional revenue over the next 10 years. OMB has estimated that the cuts will add $1.5 trillion to the debt.

This morning, October housing starts and permits were reported. Both much stronger than estimates. Starts were expected at 1190K, starts were 1290K, and September stats were revised higher to 1135K from 1127K; percentage-wise, starts +12% from the revised September starts. October building permits expected at 1250K increased to 1297K, and September revised to 1225K from 1215K, an increase of 5.5% from the September revision. The better housing report follows the increase in the November NAHB housing market index yesterday, increasing to 70, the highest index since last March - current and future sales are very strong, each at 77, and traffic is improving, up 2 points to 50 for its best reading since May. Starts and permits were at a one year high and likely due to the beginning of home replacements caused by those hurricanes.

Still no trending movement in the bond and mortgage markets, tracking the stock indexes like a blood hound on the scent. Stocks also not moving much when seen over the last month - kneejerk reactions like yesterday but not making new highs (DJIA). 
The bellwether 10yr note and 30yr mortgage rates not much different now than a month ago. Tax cuts are the headlines but economic data also improving as have been Q3 earnings overall.

Mortgage Rates a Tad Higher

Mortgage rates moved a tad higher today, but really only in the amount charged for the rates that were quoted from yesterday.  This morning contained several economic reports and the House passed its tax bill in the afternoon, but none of those events caused much of a stir for bonds.  In fact, all of the bond market movement responsible for today's higher rates occurred during Asian and European trading hours.  When US traders got in for the day, bonds were almost perfectly sideways till close of business.

The House bill stayed within the $1.5 trillion increase in the US deficit to keep the fast track progress.  And while we are at here - a lot of the focus is on the increase in the deficit over 10 years based on the assumptions used for calculations. That should not be seen on its own, as it must also include the continuing increase in US debt that is increasing by about $500B per year recently ($1 trillion every two years. The current debt is about $20 trillion, over the next 10 years at its present pace it will increase $5 trillion more, then add the $1.5 trillion in the tax cuts and the possible US debt total could increase to $26.5 trillion. We need the tax reforms but one day the US will have to face the implications of increasing debt.

There is a cloud forming over the horizon - the increased costs of Social Security, Health care and an aging work force as the majority population as defined by various age groups is declining. Baby Boomers have entered the entitlement system into Social Security and Medicare. Not much we can do about it, and there is no desire to make a case of the debt. Have not done that for a decade and it will not get much attention until the debt becomes a crisis. Any of you that are under 50 or so will not avoid the implications.

Tax bill passed in the House, the stock market roaring ahead but the 10yr note did not move much, as it stands at 2.36% - still in the very narrow range and holding mortgage rates relatively steady. Stock indexes have been choppy recently with sideway trading, DJIA down yesterday, and up today.

In summary, bond markets regressed slightly today, as pundits pondered whether tax reform would pass the Senate.   A Senate train wreck on tax reform could boost bonds, but I am not willing to predict that just yet.  Within 30 days of closing?  Locking is the safe bet, unless you really enjoy "action".  

Thursday, November 16, 2017

Mortgage Rates Steady After Good Economic Reports

Mortgage rates are moving sideways so far today.  Yesterday the stock indexes traded weaker, while the 10yr and MBS prices improved. This morning, stock indexes in futures trading were firm and the 10yr (2.35%) and MBS prices (a negative 8BPS) are a bit lower at 11:00AM. Not really anything different than markets have been trading for a month now. With all the focus on the tax bills and somewhat less interest on current economic data, markets are moving on every sentence uttered by members of Congress as they relate to the tax cuts that are going to occur, although when and what the final bill will look like keeps investors edgy.

Initial Weekly Jobless Claims came in at 249K vs est of 235K. The more closely watched 4-week moving average rose from 231,250 to 237,750.  The Philly Fed Manufacturing Index had its 16th straight month of expansion with a reading of 22.7. Almost all the future indicators rose, and firms continue to expect growth in both activity and employment over the next six months.

October Industrial Production was very strong with a 0.9% gain vs est of 0.5%. The Manufacturing component had a 1.3% surge. Capacity Utilization was also higher than expectations.

Republicans talking about a vote today. The House is expected to take up the bill this afternoon after an 12:30 meeting with Donald Trump. Last night, The King of Tweets saying “Big vote tomorrow in the House. Tax cuts are getting close!”. Still some resistance to the reported plan by some Republicans. The House cannot lose defectors if the current bill is to pass. The new issue: including the repeal of the tax penalty in Obamacare that is charged to those that do not sign up for insurance. Overall, a tax package will eventually become law, but in the meantime, markets will suffer the constant comments coming out of the deliberations.

The economic numbers, overall, were slightly better than expected. Markets still more focused on the tax cuts but not entirely; the economy looks like it is moving forward with no inflation.  The lack of it is a support for the long end of the curve that continues to attract safety movement with equity markets remaining very overbought technically. I do not expect significant mortgage rate volatility today. However, anything unexpected with the tax plan could move markets and mortgage rates.