Mortgage Rates


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



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Wednesday, March 02, 2011



The employment dance has begun; ADP starts the waltz with its estimate, out this morning saying non-farm private jobs increased by 217K against estimates ranging from 160K to 170K. The reaction put pressure in the bond and mortgage markets. ADP is almost always wrong compared to the official BLS report that will be released on Friday morning. It is the same every month, why do markets pay it any attention; once the BLS data is released no one gives a damn what ADP had to say. That traders give it any credibility based on past comparisons is an enigma to me. Over the previous six reports, ADP’s initial figures were closest to the Labor Department’s first estimate of private payrolls in November, when it overstated the gain in jobs by 43,000. The estimate was least accurate a month later, when it overestimated the employment gain by 184,000.

Crude oil remains the prime driver in the bond and equity markets; yesterday crude moved above $100.00/barrel in the afternoon but by the close it fell back to $99.63. $100.00/barrel appears to be a hurdle crude hasn't yet been able to clear, tested twice and failed both times. This morning crude at 9:15 traded at $100.58 (see below for 10:00 level). At 9:15 the stock indexes were slightly higher on the ADP jobs report and not much increase in oil prices.

Oil price continues to be the key to US markets. Unrest in the Mideast is continuing but in the last few days nothing critical. In Oman the largest Middle Eastern producer outside of OPEC, protesters blocked a highway linking the northern city of Sohar to the capital Muscat yesterday as the army set up checkpoints around Sohar and inspected vehicles. The country pumped 885,600 barrels of oil a day in January. Demonstrators clashed with security forces in Tehran yesterday. Riots from Morocco to Bahrain have toppled leaders in Tunisia and Egypt and there have been protests in Yemen, to the south of Saudi Arabia, the world’s biggest crude exporter. Saudi Arabia’s stock market dropped 2.6% today, taking declines this week to 14%.

Earlier this morning the weekly MBA mortgage applications were out. Applications decreased 6.5% from one week earlier, The results do not include an adjustment for the Presidents Day holiday. The Refinance Index decreased 6.5% from the previous week. The seasonally adjusted Purchase Index decreased 6.1% and was 19.6% lower than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is down 2.5%. The four week moving average is down 2.2% for the seasonally adjusted Purchase Index, while this average is down 2.7% for the Refinance Index. The refinance share of mortgage activity decreased to 64.9% of total applications from 65.7% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.5% from 5.6% of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.84% from 5.00%, with points increasing to 1.30 from 0.96 (including the origination fee) for 80% loans. This is the third consecutive weekly decrease for the 30-year contract rate. The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.17% from 4.28%, with points increasing to 1.07 from 0.80 (including the origination fee) for 80% loans.

At 9:30 the DJIA opened down 9 points but quickly moved to up 3 points, the 10 yr note -8/32 back up to 3.43% +3 bp and mortgage prices at 9:30 -3/32 (.09 bp).

Bernanke will testify at the House Financial Services Committee today completing his required semi-annual testimony on the economy and momentary policy. Yesterday at the Senate it was cordial, today it will likely be more contentious with House members not so polite. That said, he won't change anything and in the end it will be more of a venting by Committee members looking for TV coverage and media ink.

At 2:00 this afternoon the Fed will release its Beige Book, the Fed's detailed report on the economy from the 12 Fed districts. Unlikely there will be anything substantial coming out of it.

Technically, the 10 yr note continues to resist breaking below 3.40%, mortgage prices at their resistance at 98-20/32. Oil is driving trading for the most part but the economy isn't being ignored completely. With the Feb employment report on Friday bond and equity markets may stall here for a day or two unless crude oil makes a solid break above $100.00, presently at $100.35. The relative strength index on the FNMA 4.0 coupon is approaching over bought levels.