Mortgage Rates

Happy New Year! Not a good start to the year in the bond and mortgage markets this morning. The rate markets being pressured by better than expected employment data in Germany. Europe's stock markets higher today, US stock indexes in early traded this morning indicating the DJIA at 9:30 would open 185 points higher. The number of people out of work in Germany fell a seasonally adjusted 22,000 to 2.89 million, the Nuremberg-based Federal Labor Agency said today. Economists forecast a decline of 10,000, the median of 20 estimates. With the exception of a 6,000 increase in October, German unemployment has now fallen in every month since June 2009. The average jobless total in unadjusted terms for 2011 squeezed below the 3 million mark at 2.97 million, the lowest since 1991.

Most of 2011 it was Europe's debt problems that drove volatile market moves. While there isn't anything that has changed in Europe, markets seem to be believing the debt mess won't be as significant to economic growth that had been widely expected. Most of the recent US data reports have been better than forecasts, in Europe somewhat the same picture. A momentary thing based largely on the lack of any real actual defaults or bank failures, or a turning point in thinking? Germany's unemployment rate declined to 6.8% frm 6.9%. In the UK its manufacturing index, similar to the US ISM index, fell unexpectedly. The Chartered Institute of Purchasing and Supply rose to 49.6 from a revised 47.7 in November; the consensus forecast was for a drop to 47.3 from an initially reported 47.6 in November. A level below 50 indicates contraction.

While data from Europe is supporting and adding to the improvement in US equities this morning, there hasn't been much change yet in the sentiment that Europe's debt issues have been alleviated in the least. The potential change in some of the thinking is that global economies won't be hurt as badly has had been believed based on recent reports in the US and a few counties in Europe. Presently markets are somewhat less fearful, but it is a fragile belief that doesn't have a lot of substance yet.

At 9:30 the DJIA opened +140, the 10 yr note -21/32 at 1.95% +6 bp and mortgage prices -8/32 (.25 bp).

At 10:00 Dec ISM manufacturing index expected at 53.4 frm 52.7 in Nov; as reported the index hit at 53.9. The components; new orders 57.6 frm 56.7, prices pd at 47.5 frm 45.0 and employment at 55.1 frm 51.8. Any index over 50 is considered expansion. The initial reaction added a little to the already strong stock market.

Also at 10:00 Nov construction spending expected up 0.5%, jumped 1.2%. Nov construction spending originally reported up 0.8% was revised to -0.2%.

Later this afternoon at 2:00 the minutes from the Dec 13 FOMC meeting will be released.

Regardless of the various momentary influences on US markets, particularly the bond and mortgage markets, the 10 yr note continues to find resistance when it falls below 2.00%, this morning at 1.95% it is holding. Most technicals remain bullish, however it won't last much longer unless the yield continues to decline.