Mortgage Rate Update





Anthony Hood
Equity Investment Capital
Office: 949-891-0067
Email: tony@equityinvestmentcapital.com
website: www.equityinvestmentcapital.com



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Monday, January 10, 2011


Treasuries and mortgages opened a little better this morning with stock index futures trading weaker. There is no data to think about today, most of the key economic reports hit on Thursday and Friday; in the meantime the rate markets will contend with $66B of Treasury auctions beginning Tuesday. Today and tomorrow not much scheduled, in the meantime it is a waiting game and focus on the action in the equity markets that continue to discount the increasing view that the US economy will rebound nicely in 2011.

This Week's Economic Calendar:
Tuesday;
10:00 am Nov wholesale inventories (+0.9%)
1:00 pm $32B 3 yr note auction
Wednesday;
7:00 am Weekly MBA mortgage applications
8:30 Dec import and export prices
1:00 pm $21B 10 yr note auction
2:00 pm Dec Treasury budget balance (-$80.0B)
Fed's Beige Book
Thursday;
8:30 am weekly jobless claims (+6K to 415K; con't claims 4.09 mil from 4.103 mil)
Dec producer price index (+0.8%, ex food and energy +0.2%)
Nov trade balance (-$41.2B)
1:00 pm $13B 30 yr bond auction
Friday;
8:30 am Dec consumer price index (+0.4%; ex food and energy +0.1%)
Dec retail sales (+0.7%, ex auto sales +0.6%)
9:15 am Dec industrial production (+0.4%)
Dec capacity utilization (75.5% frm 75.2%)
9:55 am Jan U. of Michigan consumer sentiment index (75.4 frm 74.5)
10:00 am Nov business inventories (+0.8%)

Concerns about potential inflation have not diminished, just pausing for the moment. That traders have turned attention to other issues like the decline in stock markets today, doesn't alter the global concerns that inflation is about to increase. Likely will get a a toe old in emerging markets first, the Europe and the US. The global economic recovery has been stronger and quicker than had been thought, particularly in emerging markets. In Europe the ECB is sounding the warning bell with commodity prices increasing and food prices escalating rapidly. IN the US we look at inflation without consideration of food and energy prices because historically those areas are considered too volatile; that was then, this is now. We believe food and energy costs are going to continue to increase and spill over to all commodities; that has already started and will continue.

The increase in food and energy prices is a two way street for the rate markets; higher food and energy will slow consumer discretionary spending lessening any chance retailers and goods producers will be able to increase prices as consumers slow spending. That however won't hold prices down much longer for other consumer goods, so far producers and retailers have not passed along increases, they simply are cutting back quantities and sizes to offset their price increases. Sooner rather than later those increases will work down the chain to consumers and will send interest rates higher. The caveat, and there always is one, if consumers don't meet current market expectations the economic outlook will weaken and if it does inflation worries will go back in the box and rates will stay historically low.

Technically the 10 yr and mortgages still have slightly bearish tones but slowly that may be changing. If the 10 yr note can clear 3.25% it will likely have a run to 3.00%. The MBS markets are in slightly better technical position but won't launch anything significant until the 10 yr makes its move. The 2011 economic outlook is improving, however skepticism still hangs over markets.

Most every global stock market traded weaker today, Europe still weak. Asian emerging markets took the biggest hits on increasing fears of inflation on exceptionally strong growth. The US equity markets opened weak and getting weaker as the day moves along. Interest rates benefiting on weaker global equities. Crude higher on the closure of the Alaska pipeline due to a leak at a pumping station.