The best the market can hope for (short term) is to stabilize at current levels given all the uncertainty in stocks and global assets. Good idea to stay defensive and see how the next day and a half play out.
What is catching trader’s eyes this morning is China and their latest release of GDP. The plus 10.7% has the Dragon breathing fire and Wall Street worried about overheating.
The market was looking for a better number, given high hopes of a better holiday season. We see the negative December reading as unsettling, reflecting a consumer that has started to spend but at a snail’s pace.
Prices continue to probe the neckline of a reverse head and shoulders pattern but we will need the market to close at or below 3.45% to keep rally hopes alive. The auction will be key to our short term direction. Notice how the purchase applications hit a 9 year low and yet interest rates are available in the 4.875% range. Tells you how strapped the consumer is.
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.
Market action, as I mentioned earlier has been a two way street. With earning season (stocks) in full swing, volatility has really picked up in both equities and bonds. Mortgage backs have been the worst performer on the day with spreads to treasuries widening as sellers continue to lean on the market. Currently, the 10 year note is off 7/32’s (yield 3.45%), MBS off 9/32’s, and stocks off only 1 point on the big board. Technically, we are trading a lower lows, lower highs type of pattern. By nature it is bearish and suggests higher interest rates, worsening Austin mortgage pricing present the higher probability. We will want to pay close attention the 10 year yield as it approaches 3.48% - 3.50%. That level is key support and “should” provide a near term bottom, followed by a rebound. If that level does not hold, MBS could feel another ½ point of pain. Play defense as the trend is not your friend!
With the FOMC dust settled, a couple of points are worth mentioning. First up, the FOMC made no mention of an exit strategy, instead talking about keeping Austin mortgage rates low for an extended period of time. Number two was the statement about continuing the purchase of Treasuries and MBS and extending the period until the end of Q1, allowing for a wind down period. Seems obvious that they are more concerned about housing and the economy versus inflation and deficits. One reason for the accommodative policy may be the building inventory due to future delinquency and foreclosures, estimated to be 7 million units. This is what we call “shadow inventory”, not yet on the books but in the pipeline nonetheless. That number is huge, representing an entire year of sales. We shall see.
Strange forces at work here that are driving the market so take advantage. Technically, buyers have taken pricing through major resistance which have formed bullish readings on trend studies and oscillators. The move has also confirmed a “hammer bottom” on yesterday’s candlestick charts however, daily studies will need time to catch up for a full blown rally. Call the market, bullish, schizophrenic, Sybil (remember the movie), irrational, and interesting. It’s a lot like herding cats.
Bonds and MBS have firmed a bit on the heels [...]
Once again, it’s time for the “Mother” of all economic [...]
