Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. Friday, August 31, 2012 Yesterday the stock indexes took a hit on light volume with the DJIA ending -107; this morning at 9:00 the DJIA futures were up 114 points. The 10 yr note yield at 9:00 up 2 basis points after declining 2 bp yesterday; mortgage prices were unchanged at 9:00. All Europe stock markets trading better. Prior to 10:00 when Bernanke is scheduled to deliver his long anticipated speech and whether the Fed is ready to ease again soon. It is a toss-up, some looking for an easing in Sept while some think later this year and others thinking there won’t be any more easing because the economic outlook is improving slowly. German 10-year bunds fell, pushing yields up the most in more than a week, amid speculation the U.S. will add further monetary stimulus to boost the world’s largest economy, damping demand for the safest assets. 10-year yields rose seven basis points, or 0.07 percentage point, to 1.40%; The rate has increased 11 basis points this month while US 10 yr note has declined in yield. The spread between German 10 yr bunds and US 10 yr is 24 basis points. The jobless rate in the economy of the 17 nations using the euro was 11.3% in July, the same as in June after that month’s figure was revised higher. That’s the highest since the data series started in 1995. Inflation accelerated to 2.6% in August from 2.4% in the prior month. European economic confidence dropped more than economists forecast to a three-year low in August and German unemployment increased for a fifth month, adding to signs the euro-area economy continued to shrink in the third quarter. The ECB continuing to work cobbling a deal to buy Spanish and Italian bonds to keep their interest rates low and help those two economies. Still a long way to go though; German resistance continues but appears to have soften a little; meanwhile the German courts are due to rule on the legality of sovereign bond purchases on Sept 12th. The ECB meets on Sept 6th. The next FOMC meeting begins on Sept 12th. Lots of action within 6 days! At 9:30 the DJIA opened +66, NASDAQ +22, S&P +8; the 10 yr note at 1.63% unchanged on the day while 30 yr MBS price -3 bp. 9:45 the Chicago purchasing mgrs. index, expected at 53.0 frm 53.7; as reported the index was right on at 53.0. 9:55 the U. of Michigan consumer sentiment index expected at 73.6 increased to 74.3. 10:00 July factory orders expected +2.0% declined 0.5%. Order declines for petroleum & coal sent non-durable goods down 2.0%. Orders for petroleum & coal fell 2.9% for their largest drop in nearly 3-1/2 years. Durables orders gained 1.3%. Three economic reports 15 minutes before Bernanke speaks; there was no trading on the data ahead of what he may say.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. Treasuries and mortgage markets saw a little selling yesterday with MBS 30 yr price down 19 bp. This morning markets are doing better, not much early but still better. With Bernanke’s speech tomorrow markets are trading in tight ranges this week; the 10 note in a 3 bp yield range and mortgages generally unchanged from last Friday, up 21 bp. At 8:30 this morning weekly jobless claims were reported unchanged from last week; last week was revised up from 372K to 374K. The 4 wk average of claims up 1500 frm last week. Unemployment claims over the last six weeks have been generally flat, from 360K to 374K; there are those that see the increase in claims as significant in terms of nudging the Fed to ease soon. There is little reason to see claims other than unchanged for the last six weeks. As for claims not falling translating to a reason for easing, there should be little disagreement that the Fed has no power to create jobs in this environment whether it eases or not. Consumer spending in the U.S. climbed in July for the first time in three months, increasing 0.4% and right on forecasts. July personal income up 0.3% also right on target. Because spending rose more than incomes, the saving rate fell to 4.2% from 4.3% in June, the highest level in a year. Two weeks ago July retail sales were up 0.8% setting the stage for today’s spending figures. In Europe an index of executive and consumer sentiment in the 17-nation euro area dropped to 86.1 from 87.9 in July, the European Commission in Brussels said today. That’s the lowest since August 2009. Economists had forecast a decline to 87.5. In Germany, jobless claims rose for a fifth month in August. Reports today showed retail sales in Japan fell 0.9% in July from a year earlier, more than economists’ forecast. Europe continues to drag the global economies down with the inability to deal decisively with sovereign debt problems. Three years with nothing but talk and dangling the hook out there that “next month” there will be progress; of course the outcome has been that Europe is bringing us down to its level as the economies of China, Japan and US among others. At 9:30 the DJIA opened -70, the lowest in the last 4 weeks, NASDAQ -16, S&P -8. The 10 yr note at 1.62% -3 bp , 30 yr MBS price up 18 bp frm yesterday’s close. The German central bank and the ECB’s Draghi continue to argue over the ECB plan to buy Spanish and Italian bonds to keep those countries’ debt cost from increasing. The Bundesbank argues that buying sovereign debt is against the EU treaty while Draghi believes it has the authority to do so. Draghi wrote an editorial piece yesterday in one of Germany’s popular weekly papers saying “A new architecture for the euro area is desirable to create sustained prosperity for all euro-area countries, and especially for Germany”…. “Yet this new architecture does not require a political union first. Economic integration and political integration can develop in parallel.” Lot of rhetoric from both sides of the debate, nothing unusual about that as it has been the key issue for the last month. On Sept 6th the ECB meeting will debate the issue of ECB bond buying, while on Sept 12th the German high court will rule over the legality of such a move. Tomorrow Bernanke will deliver the long awaited speech that two weeks ago was widely thought would signal another easing move. Now the consensus is that he will not send that signal of an imminent easing but simply reiterate what the FOMC minutes have stated for the last three meetings, that the Fed is prepared to move if the need arises. Based on recent data points the Fed won’t ease as long as the US economy is improving even at the current slow pace. At 1:00 this afternoon Treasury will auction $29B of 7 yr notes, based on the 2 yr and 5 yr auctions, the demand should be OK but not outstanding. The technical read on the bond market remains bullish, now trading under the 10 yr 20 and 40 day averages on the yield. The obvious question now is how much lower will long term interest rates fall? From a trading perspective we go with the flow, however, frm a fundamental point of view we don’t expect rates to fall much more; certainly we believe the lows of long term interest rates (mortgages and treasuries) have been seen when the 10 yr fell to 1.40% a month ago. As long as economic data confirms economic improvement, even slightly, the Fed has little reason to increase its balance sheet. These historically low interest rates engineered by the Fed haven’t added jobs or increased business spending. Why waste what bullets the Fed has left?

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. Markets started flat this morning after a quiet and generally unchanged trade yesterday. It is all about what Bernanke will say in his speech Friday at Jackson Hole, in the meantime investors and traders are unlikely to move markets much. A week ago there was a wide belief the Fed will ease at the Sept FOMC meeting and that Bernanke would signal the ease in his speech. Today that conviction has lost some momentum as the clock ticks on. An easing isn’t completely off the table but the timing may be. Yesterday Mohammad El Erian at PIMCO suggested Bernanke will hold off saying the Fed will ease at the Sept meeting and continue to imply the Fed is ready to move when necessary as the FOMC minutes clearly stated. A week ago Bernanke sent a letter to Congress reiterating he is prepared to do more if the economy falters. It depends on the data whether the Fed will ease again in Sept, recent data brings that into focus. Yesterday’s June Case/Shiller home price data was better than expected, home prices appear to have bottomed according the report; the 20 city home price index, expected unch frm May, increased 0.9%. and increased 0.5% from June 2011, the first gain since September 2010. This morning at 8:30 Q2 GDP revision increased the growth from +1.5% reported last month on the advance report to +1.7%. July new and existing home sales increased----data that was not in evidence when the FOMC met on Aug 1st. July retail sales were better than thought, also coming after the FOMC meeting. Based on improving data the Fed may hold off any easing. Yesterday Mario Draghi, Pres. Of the ECB cancelled his appearance at eh Jackson Hole conference, saying he was too busy to take the time out. Not sure what to make of it if anything but there is speculation the bank is moving closer to a resolution to the debt crisis in Greece, Spain and Italy. That said, there can’t be any significant plan until the German high court rules on the legal issues in the EU charter relating to what the ECB has the power to implement. Draghi shot back at German resistance for his plan to buy debt from Spain and other countries to cap interest rate levels. The ECB “will always act within the limits of its mandate,” Draghi wrote in a commentary for a German newspaper. Angela Merkel has signaled broad support for ECB bond buying, but is finding resistance among some politicians in Germany. Three years of talk and no real solutions so far, dragging global economies down. The weekly MBA mortgage applications out this morning. The purchase index rose 1.0% in the August 24 week for a second straight sizable increase. The refinancing index, which had been very strong earlier in the summer, fell 6.0% for a second straight weekly decline. Rates moved lower in the week with the average 30-year mortgage for conforming loans ($417,500 or less) down 6 basis points to 3.80%. At 9:30 the DJIA opened +5, NASDAQ +4, S&P +2. The 10 yr note at 9:30 1.65% +1 bp; 30 yr MBS price -6 bp. At 10:00 July pending home sales from NAR were expected up 1.0% after declining 1.4% in June. Pending sales, contracts signed but not closed increased 2.4% from June and yr/yr +12.4%. The overall index is at its highest level since April 2010. The increase in pending sales implies August new and existing home sales will be strong. Another better than expected data point that may keep the Fed from easing again soon. The initial reaction to the strong report sent the 10 yr note yield up another basis point to 1.66% up 2 bp frm yesterday. At 1:00 Treasury will auction $35B of 5 yr notes. Yesterday’s 2 yr auction was OK, in line with the average demand over the last 12 months. Finally today, at 2:00 the Fed Beige Book will be released; the Fed staff’s detailed report for all 12 districts.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. Prior to 9:00 this morning the stock indexes were a little weaker while the rate markets saw more improvement. At 9:00 the June Case/Shiller 20 city home price index, expected unch frm May, increased 0.9%. and increased 0.5% from June 2011, the first gain since September 2010. The report said rising demand driven by mortgage costs close to a record low has trimmed the glut of unsold houses on the market, giving property values a lift. Prices covering all the U.S. increased 1.2% in the second quarter from the same time in 2011 compared with a 1.4% drop in the year ended March. “We seem to be witnessing exactly what we needed for a sustained recovery,” David Blitzer, chairman of the S&P index committee, said in a statement. “The market may have finally turned around.” Good news for the housing markets; recent data on existing and new home sales in July were also stronger than estimates when released last week. There was no noticeable reaction to the report. Markets looking toward the Jackson Hole conference beginning on Friday with Bernanke speaking, will he signal another easing at the Sept FOMC meeting, or disappoint markets that easing is not likely to occur in Sept? Most views and forecasts are that the Fed will ease soon with increased purchases of treasuries and mortgage-backed securities. Global economies are slowing, from Japan and China to Europe and the US; while some of the recent data is improving there is still weakness in employment, one of the Fed’s legal mandates. Easing again by the Fed will keep interest rates low but is unlikely to increase employment. Businesses are not likely to increase spending as long as Congress and the Administration are unable to agree on what to do when the Bush tax cuts and the SS cuts expire at the end of the year. Low rates are welcome but jobs are what will boost the economy. The Fed can’t help job growth by another easing move. The Jackson Hole conference that begins on Friday will be without ECB Pres. Draghi, he announced this morning he will not attend, saying his work load won’t allow him to attend. The ECB meeting is scheduled for Sept 6th, why he cancelled will be debated through the day. Is a deal to finally have a plan to help Greece, Spain and Italy getting closer? The calendar works against that view though; the ECB can’t achieve a plan of any substance until the German high court rules on the legality of the ECB’s EU constitution that restricts the bank from buying sovereign debt. Yields on Spanish and Italian bonds have plunged to three-month lows on optimism the ECB and the single currency’s 17 members will agree on a plan to use short-dated sovereign debt purchases to curb governments’ borrowing costs and win them time to implement fiscal changes. The German court will decide; what if the court deems it unconstitutional, then what-----another plan down the drain and the mess continues like a nightmare that won’t end. At 9:30 the DJIA opened -20, NASDAQ -5, S&P -3; the 10 yr note yield 1.64% -1 bp. MBS 30 yr price at 9:30 +15 bp frm yesterday’s close. At 10:00 August consumer confidence index declined more than though; the forecasts called for the index at 65.8, the index fell to 60.6 and July confidence was revised from 65.9 to 65.4. On the release the stock indexes declined a little while the bond and mortgage markets improved. The weaker index adds to the view that is dominant that the Fed is going to ease soon. Inch by inch the interest rate markets have improved on Fed easing. Technically the momentum oscillators have gained strength, the 10 yr found solid support last week when it increased to its 200 day average. Presently the rally has driven the 10 yr rate back down under its 20 day Average and now testing its 40 day.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. Monday, August 20, 2012 Treasuries and mortgages started lower in price this morning; early trade in the stock indexes somewhat weaker. This week has little scheduled news and data; the Republican convention gets underway but likely it won’t have any market impact. July new and existing home sales and July durable goods orders are all there is this week. Europe’s leaders are returning from vacation with agreement still elusive on measures to support Greece and to prevent Spain and Italy being shut out of sovereign debt markets. Spain urged unlimited European Central Bank support over the weekend after its 10-year bonds last week advanced for the first time this month, as Merkel signaled conditional support for the ECB’s plan to help reduce indebted countries’ borrowing costs. Germany’s prime minister Angela Merkel, last week sounded sympathetic to the ECB’s plan to buy sovereign debt and cap interest levels in the region; a huge positive as Germany has resisted any plan that isn’t headlined by austerity and spending cuts. Now comes Germany’s central bank adding another level of criticism to the ECB plan saying it would be highly risky. Germany’s Bundesbank criticized a European Central Bank plan to lower the region’s sovereign yields through bond purchases, highlighting the rift among policy makers over ways to end the debt crisis. Spain urged unlimited European Central Bank support over the weekend after its 10-year bonds last week advanced for the first time this month. Luxembourg Prime Minister Jean-Claude Juncker, who also heads the group of euro-area finance ministers, will discuss a request by Greek Prime Minister for a two-year extension to the indebted nation’s fiscal adjustment program when he visits Athens on Wednesday. This week has EU country leaders flying all around in various meetings after their long vacations ended. Although the Bundesbank is opposed to the ECB plan, markets appear to believe there will be a plan that includes buying sovereign debt by the ECB. Meanwhile US and German interest rates are on the increase; Germany’s 10-year bund yield climbed five basis points today, to 1.54%. It jumped 11 basis points last week. The two-year note yield advanced three basis points to minus 0.017%. US interest rates last week, (10 yr note) increased 16 basis points to 1.82%, MBS rates up 10 basis points. Although interest rates have increased over the last three weeks, banks are buying huge amounts treasuries and agency debt. The gap between U.S. bank deposits and loans is growing at the fastest pace in two years, providing lenders with more funds to buy bonds and temper the biggest sell-off in Treasuries since 2010. Banks have already bought $136.4B in Treasury and government agency debt this year, more than double the $62.6B in all of 2011, pushing their holdings to an all-time high of $1.84 trillion. Still a bearish market for interest rates although there is a potential of some retracement. Mostly technical rather than fundamental change. US interest rates increasing based on some relaxation over the EU debt crisis and with economic reports showing some strength the idea of another Fed easing has diminished. On August 30th Bernanke will deliver his opening speech at the annual Jackson Hole economic conference of global economists; his remarks will likely settle whether the Fed will ease again. Presently, the view is that the Fed won’t move to add more buying to its balance sheet. The potential exists for the rate markets to stall at these levels, or possibly fall some. The rapid recent rise in rates has so far found support when the 10 yr note hits its 200 day moving average at 1.86%. Most of the momentum measurements are at oversold levels; however, any improvement in the rate ,markets won’t likely be much---if any.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. Financial markets started about unchanged early this morning; the stock indexes a little weaker, the 10 yr note yield down 3 bp and MBS prices at 8:00 unchanged from yesterday. Markets quiet ahead of data at 10:00. Optimism continues that the EU is making progress to fend off defaults on sovereign debts and save the EU from a break up. According to news reports European leaders are moving closer to an agreement on solving the region’s debt crisis that may involve buying sovereign debt. Austrian Chancellor Werner Faymann said the breakup of the euro area or the bankruptcy of a member would do more harm than good, a day after his German counterpart Angela Merkel said leaders “feel committed to do everything” to safeguard the monetary union. “The negative consequences of a euro zone breakup would by far exceed possible benefits it could have for individual countries,” Faymann said in a statement today. Merkel is due to meet French President Francois Hollande on Aug. 23 and Greek Prime Minister Antonis Samaras a day later. “Obviously time is pressing” on stamping out the debt crisis, though “on many of these issues we feel we’re on the right track,” Merkel said yesterday. The increasing view that something is about to occur in the EU that will take it from the edge of the cliff has removed much of the safety moves to US treasuries, causing the 10 yr note yield to increase 45 basis points in rate over the last three weeks and increased mortgage rates by 25 basis points. Over the last couple of years the leaders in the EU, ECB and IMF have failed to come to any agreement that would ease the stress on southern Europe countries that are on the edge of default, now finally there actually may be some plan coming that every country in the EU can agree on. Been there before, but this time may be different, at least that is the view of markets as stocks increase and interest rates have increased. Besides the improving outlook in Europe, the interest rate markets also pressured by signs of improvement in the economy have boosted yields as investors reduced bets that the Federal Reserve will start another quantitative easing program when it meets on Sept. 12-13. Minneapolis Fed President Kocherlakota said the U.S. central bank has gone too far by pledging to hold its main interest rate near zero at least through late 2014. “I would not have chosen to put that date as far out as the committee has chosen,” Kocherlakota said in response to a question. Dallas Fed Pres. Fisher and Richmond Fed Pres., Philly Pres. Plosser and Richmond Fed Pres. Lacker are also echoing that thought. At 9:30 the DJIA opened +15, NASDAQ +1 and S&P +2; the 10 yr note yield at 1.82% -2 bp and 30 yr conventional MBS +15 bp frm yesterday’s close. At 9:55 the final U. of Michigan consumer sentiment index, expected at 72.0 frm 72.3 increased to 73.6. Better both still well of the year’s high at 79.3, it is the third lowest index read this year. At 10:00 July leading economic indicators, expected +0.2% increased 0.4%; however June LEI originally reported -0.3% was revised to -0.6%. The reaction to the two reports was minor. The bond and mortgage markets are in oversold technical position but yet haven’t turned as we expect we will see in the next few days as long as there isn’t any negative news out of Europe and the stock markets don’t explode in any major way. The wider look is that the 10 yr has the potential to increase to 2.00% but prior t\o that we may see some retracement. Any improvements I the bond and mortgage markets should be used to take advantage of any decline in rates. Right now there is little motivation for the interest markets to fall. Bernanke will open the Jackson Hole Fed conference on Aug 30, at which point markets should have a clear understanding about what can be expected at the mid-Sept FOMC meeting.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. In trading overnight the bellwether 10 yr note yield climbed to 1.855% after ending yesterday in the US at 1.81%. This morning the 10 yr has backed down to 1.81% in early trading. At 8:30 weekly jobless claims were rather benign, up 2K to 366K; claims have been stable now for the last month hanging around 360K to 370K. That claims are flat (not falling or increasing) implies businesses are no long firing but equally not hiring. The four-week moving average, a less volatile measure, dropped to 363,750, the fewest since the week ended March 31. July housing starts were expected to decline 1.4%, as reported -1.1% after increasing 6.8% in June. July building permits were expected up 1.4%, as reported up 6.8%. Building permits, a proxy for future construction, rose to an 812,000 pace, the most since August 2008. Early activity in the stock market futures trading had the DJIA up 28 at 9:00, NASDAQ +7 and S&P +2. The 10 yr note unchanged at 1.81%. Interest rates have increased on two fronts; less fear over Europe’s debt and economic crisis waning at the moment and less belief now that the Fed will ease in Sept. Better economic reports recently have taken the QE off the front burner. At the last FOMC meeting the Fed said it would closely monitor economic activity to determine whether the economy needs more easing, given the improving data markets are now less certain the Fed will act. The two issues have combined to send interest rates on long dated treasuries up 40 basis points in rate (10 yr note) and mortgage rates higher in turn. Yesterday Goldman Sachs was out arguing that the fed won’t ease in Sept, Goldman carries weight in markets. At 9:30 the DJIA opened +19, NASDAQ +8, S&P +2; 10 yr note 1.79% -2 bp and down 7 bp frm overnight highs. At 10:00 the August Philadelphia Fed business index, a key data point, the index was at -7.1 frm -12.9 in July. The report is weaker than forecasts that expected the index at -5.0. A reading under zero is considered contraction. The DJIA went from a slight gain to a slight loss on the data. The 10 yr note and mortgage markets got a small bounce on the weaker news. Today’s report is in line with figures from The Federal Reserve Bank of New York earlier this week that showed manufacturing contracting for the first time in 10 months. Slowing demand from Europe to China and cutbacks in business investment in new equipment may be hurting U.S. factories Both the treasury and mortgage markets are approaching oversold technical levels. The potential for some retracement is high although any price improvements are not likely to sufficient enough to change the current trend. To reverse the present negative outlook for interest rates the market will need a few weak economic reports to bring back the Fed easing idea that has faded recently, or more fear over what is happening in the debt crisis in Europe. Without either interest rates won’t fall back much. We still don’t believe interest rates will increase a lot more, however, as noted yesterday, we don’t trade on beliefs but on how markets are performing and presently the outlook isn’t good.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. Last week had a lot of key economic reports; the July employment report Friday had more job growth than was thought but the unemployment rate increased 0.1% to 8.3%. The report is considered somewhat suspect due to the summer auto makers re-tolling, but the headline didn’t faze stock investors or bond traders taking the stock market to a huge rally and increasing the 10 yr note yield 9 basis points. Last week was one of increased volatility with the 10 yr on the week up only 4 basis points and mortgage prices for the week +6 bp in price. This morning the 10 yr note and MBSs are a little better after the strong selling Friday. At 9:30 the 10 yr yield down 2 bp with 30 yr MBS price +9 bp. The DJIA opened +42, NASDAQ +11, S&P +5. There are no data points today. This week Treasury has its quarterly refunding with 3 yr, 10 yr and 30 yr issues totaling $72B beginning Tuesday with the 3 yr offering. About the only data this week of real interest to traders; Monday afternoon’s June consumer credit and Thursday weekly jobless claims. The best we can say now about the bond and mortgage markets is both are in a neutral to bearish outlooks. Europe is still the elephant in the room but there is nothing that has changed for the last two weeks with any plan to deal with the debt that is drowning the euro. With little data this week the bond market will focus on the Treasury refunding beginning tomorrow. Of course Europe is still very much a factor for all global markets. Greece and its creditors agreed on the need to strengthen policy efforts to support growth. Representatives from the so-called troika of the European Commission, European Central Bank and International Monetary Fund met with Greek Finance Minister Yannis Stournaras in Athens yesterday at the conclusion of the meetings. The talks will determine whether Greece continues receiving funds from the country’s 240 billion euros ($297B) of rescue packages. Germany is still the wild card in the game for allowing the ECB to buy sovereign debt from Spain, Italy and other countries that need help. Chancellor Angela Merkel’s government today backed ECB President Mario Draghi’s proposals on bond buying to help bring down borrowing costs in Spain and Italy. The government is “not worried” by Draghi’s announcement of Aug. 2, deputy Merkel spokesman Georg Streiter told reporters at a regular press briefing in Berlin today, when asked whether the government is concerned that ECB independence might be compromised. Treasury prices rose briefly this morning, snapping a decline from last week, after Italian Prime Minister Mario Monti warned of a potential breakup of Europe without greater urgency in efforts to lower government borrowing costs. Although the bond and mortgage markets have backed up some on yields, the longer term bullish bias is still there. Reports that investor optimism and appetite for treasuries remains at some of the best psychological levels in months. There is still a lot of optimism out there that the Fed will ease again at its Sept meeting (12th and 13th) with a $600B purchases of bonds and mortgages ----$300B each. That is the belief now, and as long as there isn’t anything more than talk out to the EU region, the safety trade is likely to continue but with less enthusiasm than six months ago.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. It’s the first Friday of the month, so it must be surprise Friday. The July employment report this morning didn’t disappoint in terms of data well off the mark of economists’ forecasts. Not unusual that employment data is unpredictable, it occurs almost every month. Today no exception; the unemployment rate was expected unchanged at 8.2%, it increased to 8.3% (rounded frm 8.524% actual). Non-farm job growth was thought to be about 100K, jobs increased 163K; non-farm private jobs were expected about +105K, private jobs increased 172K. Revisions to prior reports subtracted a total of 6,000 jobs to payrolls in the previous two months. Factory payrolls increased by 25,000, more than twice the survey forecast of a 10,000 increase and boosted by a 12,800 pickup in employment at makers of motor vehicles and parts. The so-called underemployment rate -- which includes part-time workers who’d prefer a full-time position and people who want work but have given up looking -- increased to 15% from 14.9%. The jobless rate, derived from a separate survey of households, has exceeded 8% since February 2009, the longest stretch in monthly records going back to 1948. The initial reaction to the better employment report sent stock indexes up with the DJIA futures at 9:00 +159. The bond market is seeing some selling but the 10 yr note and mortgages are not being routed; at 9:00 the 10 yr note traded at 1.54% up 7 bp while MBS price for 30 yr product down 29 bp. The 10 has support at 1.55%, its 40 day moving average; the last time the 10 yr closed above its 40 day average on its yield was on March 7th. The stronger employment report, at least based on the headlines, may lessen the Fed’s desire to ease more---a stretch in thinking but it has to be considered. One better data point isn’t likely to sway Bernanke yet it doesn’t encourage him either. The policy statement from the FOMC Wednesday said, (the Fed) “will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.” The employment data is being explained as a potential anomaly due to seasonal factors within the auto industry and big increases in education. Overall the data was better but it has met with suspicion that August employment will fall back and not ratify what BLS is reporting for July. At 9:30 the DJIA opened +90, NASDAQ +45, S&P 13. The 10 yr note yield at 9:30 1.55% +8 bp and 30 yr MBS price -33 bp. Within minutes of the 9:30 open the DJIA was trading up 177 points. More key data at 10:00; the July ISM services sector index, expected at 52.0 frm 52.1 in June, came at 52.6 a little better. New orders were up but the employment component declined to 493 frm 52.3. A mixed report but still supportive. This week saw an increases in interday volatility in the bond and mortgage markets; the 10 treasury note at 10:00 this morning is unchanged from its close last Friday, MBS prices at 10:00 up 16 bp frm last Friday. There is still safety moves into US treasuries as Europe continues to fumble, a lot of strong talk as usual, as usual no actual action. Although employment was better in July the Fed is still believed to be ready to increase purchases of mortgage-backed securities in an easing move in Sept at the next FOMC meeting (Sept 12th and 13th). That said, as in Europe talk is cheap; there is no guarantee that the Fed will ease---just speculation now based on a weak economy.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. Weekly jobless claims this morning were up 8K to 365K frm the revised 357K last week (originally 353K). The median forecast of 47 economists surveyed by Bloomberg News called for an increase to 370,000. The past three weeks of claims have been less reliable as a true read on unemployment filings. Starting next week, the data should be clear of any influence from the annual auto plant re-tooling closures that make it difficult to adjust the data for seasonal variations, a Labor Department spokesman said as the report was released to the press. The four-week moving average for jobless claims, a less volatile measure than the weekly figures, fell to 365,500 last week, the lowest since March, from 368,250. The number of people continuing to receive jobless benefits dropped by 19,000 in the week ended July 21 to 3.27 million, a two-month low. Early this morning the US financial markets (stocks and bonds) were volatile. The stock indexes traded higher at about 8:00, the 10 yr note yield jumped to 1.58%, up 5 bp frm yesterday’s close. About 8:30 the ECB press conference started and turned markets over; the DJIA went from +84 early to -87 at 9:15 prior to the open. The 10 yr note yield declined to 1.47% as Spain and Italy saw selling in their markets. While the ECB did not announce any details of specific plans, Draghi made it clear the bank was ready to move after working out details over the next few weeks. He signaled the bank will join forces with governments to buy sovereign bonds in sufficient quantities to remove all doubts about the future of the euro. The yield on Italy’s 10-year government bond rose 23 basis point to 6.129% and the yield on Spain’s 10-year bond climbed 7 basis points to 6.716% on disappointment that it so far is just more talk The ECB intends to join forces with governments to buy bonds in sufficient quantities to ease the region’s debt crisis, while conceding that Germany’s Bundesbank has reservations about the plan. ECB bond purchases would likely focus on shorter-term maturities, would be conducted in a way to soothe investors’ concerns about seniority, and wouldn’t breach European Union rules prohibiting the financing of government deficits, Draghi told reporters in Frankfurt. ECB officials are working on the plan and details will be fleshed out in coming weeks, he said. While Draghi’s proposals go further than the ECB’s market interventions to date, he signaled that the 23-member Governing Council has yet to reach a final agreement. “It is clear and it is known that Mr. Weidmann and the Bundesbank have their reservations about programs that buy bonds,” Draghi said, referring to the head of the German central bank. The reaction to the ECB meeting so far is bolstering the US bond market on disappointment that there were no specifics from the meeting. Traders have been conditioned over the last three years to take whatever comes from the Europe debt problems with a handful of salt; at the moment safety moves are returning to treasuries and Europe and US stock markets decline on concerns that there are still huge hurdles that the ECB has to jump before anything actually will occur. At 9:30 the DJIA opened down 84, NASDAQ -26; the 10 yr note yield at 1.48% -5 bp and 30 yr MBSs +24 bp frm yesterday’s close. At 10:00 June factory orders expected +0.6%, declined 0.5%; another poor reading for the manufacturing sector that is slowing quickly now. Although the bond and mortgage markets are doing better this morning, the 10 yr note remains unable to break below 1.47%, the low yield that has been tested now four out of the last five sessions. Technically the wider perspective remains bullish but the short term outlook is at best neutral with momentum slowing.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Building Strong, Lasting Relationships; One Client at a Time. Once again this morning the ADP private jobs data was stronger than what had been expected. ADP said private jobs increased 163K, estimates were for 125K. Last month the BLS reported private jobs at +84K; last month’s ADP data was revised to +172K. The gap between the two reports (ADP and BLS) continues to confuse the job gains. Since April 2010, ADP’s initial estimate has either overstated or understated the Labor Department’s initial reading on private payrolls by 72,000 on average. Goods-producing industries, which include manufacturers and construction companies, increased workers by 15,000, today’s figures showed. Employment in construction rose by 5,000, while factories added 6,000 jobs. Service providers increased payrolls by 148,000 workers. Companies employing more than 499 workers took on 23,000 jobs. Medium-sized businesses, with 50 to 499 employees, added 67,000 positions and small companies increased payrolls by 73,000, ADP said. This afternoon at 2:15 the FOMC policy statement will be released at the conclusion of the meeting. General belief now is that the Fed will not announce another easing move that is expected. The consensus now is that the Fed will wait until the Sept meeting to decide about buying more treasuries and MBSs to keep rates low. There will be two more employment reports between now and the Sept meeting, along with more monthly economic measurements. The Fed is at a point where the law of diminishing returns is occurring. The physics law says that at some point anymore efforts to improve something begins to lessen, eventually having no impact at all. That is where we see the Fed now; any easing won’t create more jobs, get small businesses to spend or consumers to loosen their wallets. Monthly retail sales have been declining for 3 months now as consumers have increased savings over 4.0%. Lower interest rates have little effect now. What happens tomorrow at the ECB monthly meeting is more critical to markets----stocks and US bonds. Last week ECB President Draghi surprised markets with is very strong statement that the ECB will not let the euro currency fall and keep the makeup intact. Saying the ECB will do whatever it takes, adding that the bank has ample ammo to do it. He wants to buy sovereign debt from the struggling economies and lower the borrowing requirements at the ECB. Germany on the other hand is against outright bond buying by the ECB saying it is against the EU charter. In many past episodes there have been moments where the world thought there was light at the end of the tunnel, running stocks higher and taking some safety trades out of the bond markets. What comes from the meeting tomorrow, based on the last three year history of the European debt crisis there will likely be disappointment on what comes out of the meeting. At 9:30 the DJIA opened 58, NASDAQ +11, S&P +4. The 10 yr note at 1.51%, MBS prices -16 bp on 30s and -7 bp on 15s. The increase over estimates on ADP was putting pressure on the bond and mortgage markets ahead of the July ISM data at 10:00. The July national ISM manufacturing index at 10:00, forecasts were for the index at 49.9 frm 49.7 in June. The index was at 49.8, in line; t is the second month in a row under 50 (under 50 is considered contraction) but still at a neutral area. The new orders component fell to 48. Also at 10:00 June construction spending, expected up 0.5%, spending up 0.4%. Last month’s spending was revised to +1.6% frm +0.9% originally reported. Construction looking better. The bond and mortgage markets still hanging on with slightly positive momentum oscillators but the momentum in the bond and mortgage markets is slowing. The 10 yr note is trading this morning at its 20 day average which has in the past rendered nice support. That said, we are a little more concerned now that rates might back up a little. Tomorrow’s ECB meeting outcome will likely be the trigger for more rally or some selling. \