Our view that risk is back in vogue, noting gold at record highs and stocks up 60%. Systemic risk/asset bubble risk is creeping back into the market as investors are forced into stocks and fixed income spread product. The Fed is on hold for at least another year and they (Fed) will need to see GDP growth of 4% to 5% before they will tap on the brakes (raise interest rates). We’d look for Austin mortgage rates to stay low well into 2010.
October Housing Starts fell 10.6% to 529k units (annualized). Some have blamed the fall on uncertainty over the 8K first time home buyers stimulus while others point to a consumer who is unemployed and over budget.
The Michigan Sentiment Survey was the last piece of this morning’s data. The index fell nearly 4 points to 66.0. Every component of the index fell in early November, painting a picture of one cranky consumer. It also gives credence to yesterday’s MBA Purchase Index which fell to 9 year lows. Overall, the release looked disastrous but the devil was in the details as longer term inflation expectations are beginning to rise. While the one year inflation bogey fell, the three to five year expectations were up .3%. This will be on the Fed’s radar.
Initial claims decreased by 20k to 512k, the lowest level since Jan. 3, and more than forecasts of a decrease of only 5k claims. Initial claims still remain at a fairly high level, suggesting the job market has a long recovery ahead. On the brighter side, some economists still see positive signs in the recent decreases in the four-week-moving average, and today’s 20k decrease in initial claims also may suggest an improvement in labor conditions.
Stocks had a great day, breaking a four day S & P losing streak. The Dow finished up 199 points and the Naz gained nearly 38 points on the day. Given the stock market trade, any gains in mortgage pricing will be more difficult to come by. That said, the market profile neutralized yesterday’s bullish structure but did not turn it negative. The extreme low (yield of 3.52% - going into the close at 3.49%) held with fast money buyers taking it off the lows, not to be revisited into the close. Downside trading was mixed but we did close above the session mode, a net positive. Into the end of the week/month, our bias will lean towards a range trade with follow through in either direction (better or worsening mortgage pricing) doubtful.
Weekly Unemployment Claims hit the tape plus 11K to 531K, well above the 515K economists had expected. Continuing Claims when the other way, falling 98K to 5.92 million, a level not seen since March 2009. The fall in Continuing Claims looks good on the surface but in reality reflects unemployed workers exhausting their 26 week’s worth of benefits.
Apple blew the doors off with earnings at $1.82 per share. PPI posted better than expected numbers and certainly takes the Fed off the inflation hook. Housing numbers didn’t impress anyone. We’ll stick with our neutral market call while leaning towards the bullish camp.
What a difference a long weekend makes as the majority of sellers rode off into the sunset and have not returned to rule the day as they did on Friday. Selling late last week eliminated some bullish signals off our current trend that had been established earlier this month. The drop did however find some support at the 21-day moving average at 118-055, which is also where an up-sloping trend line off the August/September lows lies. The reaction to that area suggests that selling momentum is unlikely to immediately build on the shift away from the bullish camp. Much of Friday's increase in yields was associated with perceptions of growing economic strength and possible impacts on inflation.
“In my view, if policy makers insist on waiting until [...]
Just a note as we shut the market down for [...]
