Mortgage Rates



Treasuries, mortgages and the stock indexes all better early this morning. Prior to 8:30 stock indexes were higher than at 8:30 after the June NY Empire State manufacturing report was very weak. The index was expected at 10.0 frm 13.5 last month, as reported the index fell to 2.29 with May revised to 17.09. The components also weaker; new orders at 2.18 frm 8.32, employment at 12.37 frm 20.48 and prices pd at 19.59 frm 37.35. Readings greater than zero signal expansion in the so-called Empire State Index, which covers New York, northern New Jersey and southern Connecticut. The last negative reading was in October. Factory executives in the New York Fed’s district were also less optimistic about the future. A measure of the outlook six months from now fell in June to 23.1, the lowest since October, from 29.3 the month earlier.

The next data hit at 9:15; May industrial production and factory usage. Production was expected to be up 0.1%, it declined 0.1%. May factory use expected at 79.2% fell to 79.0% but still the highest level or three years. The reaction was minor initially but by 9:30 treasuries and mortgages were at their best levels of the session so far.

The Greek election on Sunday is the dominating factor for the markets today; Greece will vote on whether it wants to say or leave the EU, meanwhile the EU leaders do not want Greece to depart, fearing other countries will walk. Yesterday afternoon news out of the region that central banks in the EU were prepared to provide additional funds to Greece to help Greece lessen the austerity forced on the country by the EU lead by Germany’s insistence that Greece cut spending, cut employment and increase taxes. Greek citizens are rebelling, the vote for the party that calls for staying in the EU or the party that wants to leave, according to polls is too close to call. Central banks intensified warnings that Europe’s failure to tame its debt crisis threatens to roil the world’s financial markets and economy as Greece’s election in two days looms as the next flashpoint for investors.

At 9:30 the DJIA opened +50, NASDSAQ +6. The 10 yr note yield at 9:30 1.58% -6 bp and 30 yr MBSs +9/32 (.28 bp) frm yesterday’s close.

The U. of Michigan consumer sentiment index hit at 9:55, thoughts that the index would decline to 77.0 from May final at 79.3, the index fell to74.1; the expectations index at 68.9 frm 74.3, current conditions at 82.1 frm 87.2, both the lowest since last December. The 12 month outlook index at 82.0 frm 91.0. Although the report is weaker than thought it didn’t have any immediate impact on the stock market or the rate markets. Investors continue to believe a Fed easing will turn the economic outlook. That said, these days there isn’t much investor money in the stock market, its all computers and traders; those with a time frame of ore that a week or two are sitting this uncertainty out.

Honk if you heard this before. European Union leaders will press for new efforts to boost economic growth and improve lending conditions when they meet later this month, according to a draft document prepared for a June 28-29 summit in Brussels. The 27-nation bloc will pursue growth measures at a time when, in the words of European Central Bank President Mario Draghi, “there is no inflation risk in any European country” and the ECB will continue to provide liquidity to the banking system.

The recent economic reports have heightened expectations the Fed will ease again when the FOMC meets next week. The data has confirmed the US economy is slowing, being dragged down by Europe’s inability to find a solution to its debt problems. While the softening in the outlook is real, the Fed isn’t likely to ease much, we expect the FOMC to announce an extension to Operation Twist that will expire at the end of this month. Extending the Twist will help keep long term interest rates from increasing much, but there isn’t any evidence that it will help the economy much. Until Europe is settled with plans that make sense to stimulate its economies, growth will continue to stall.