Florida Mortgage Daily – Daily Guidance on Florida Mortgage Rates

Locking Stance: CAUTIOUSLY FLOATING    Mortgage Bonds: –12bp

Mortgage backed securities are edging lower today with no economic data to guide them.  On days that are absent of data, news and stocks take the driver’s seat, along with technical indications.  When it comes to the technicals, we will likely see a pullback before MBS prices can climb higher and send mortgage rates lower.

Despite the lack of data today, we saw that the New Orleans Saints won the Super Bowl last night, their first ever.  OK, that doesn’t have any real importance to mortgage rates, but New Orleans was having a blast and saw plenty of business happening last night as a result, much of which will likely carry through Mardi Gras.  Stocks are dipping lower out of the starting gate as well, so that expected drop in MBS prices may not happen today.  The last thing to discuss is today’s short-term Treasury Auctions.  If they continue to do well, MBS prices will continue to benefit.  If they falter, MBS prices may fall.  The more important Treasury Auctions begin tomorrow with the 30-year T-Bond (the most important) coming on Thursday.

What does this mean for Mortgage Rates?  Mortgage rates will likely edge higher or hold steady today.  The long-term outlook is fairly solidly in favor of lower mortgage rates.  Don’t forget to check out this week’s Weekly Report just below. 

As I have now started posting regularly on MBS Commentary, I have decided to keep all posts here duplicated there, at least for now.  It may yet evolve into something else, but let’s see how it goes.  MBS Commentary is still under development, so expect many changes coming, possibly even a complete redesign.  Nevertheless, it is up and running.  OK, here is the first Weekly Mortgage Rate Forecast Recap…

What Happened Last Week?

Last week saw continued volatility to say the least, but did see MBS prices break through important levels of resistance, and thus changed the outlook.  They did so despite not so favorable data and news.  They started off the week taking a beating as stocks rallied, but the 10-day moving average held them and continued to drive mortgage backed securities higher and higher.  Most everything centered around the jobs front and things were not looking too good after Wednesday’s ADP Employment Report and the Treasury Announcements for this week’s longer-term Treasury Auctions.  It looked like the proverbial “nail in the coffin” as the 50-day MA proved too strong to break and MBS prices dipped below their 10-day MA.  But mortgage bonds rallied back Thursday and changed the entire picture by not only getting back above their 10-day MA, but breaking through both the 50-day and 100-day MAs definitively.  Friday came and was as expected, the Jobs Report was slightly better than expected and MBS prices took a nose-dive, but when reality hit, they took off again, climbing all the way to their next layer of resistance before backing down.  When all was said and done for the week, MBS prices had risen 37 basis points.

What Lies Ahead for This Week? 

This week is lacking in economic data with essentially Retail Sales and Jobless Claims (both Thursday), and Consumer Sentiment (Friday) as the only reports that may move the markets.  This week does hold numerous Treasury Auctions with traders’ eyes on the 3-year T-Note, the 10-year T-Note and the 30-year T-Bond, the latter being the more important to mortgage rates. 

When we look at the charts, we see that MBS prices have broken resistance and are poised to keep mortgage rates low, maybe even lower than they are now.  Stochastic indications remain in the overbought spectrum, so a pullback will likely be seen this week, but unless there is a surprise, I doubt they will dip below their 100-day MA.  And speaking of moving averages, we now see the 10-day breaking above the 100-day and while the 50-day is still dropping, the 25-day is climbing quickly.  Overall, there are considerably more positive indications than negative right now for the future. 

The bottom line is that this week will likely see mortgage rates edge slightly higher but then turn lower again.

Locking Stance: CAUTIOUSLY FLOATING    Mortgage Bonds: +3bp

Well, I hope you guys didn’t follow those “mortgage gurus” that said you should lock yesterday.  Instead, I hope you followed my advice because those whom truly can read the charts knew that even an unfavorable Jobs Jamboree would not likely cause mortgage backed securities to fall back below their 100-day and 50-day MAs.

OK, let’s get into the Jobs Jamboree numbers and see how bad they really were.  Nonfarm Payrolls were slightly worse than expected, at –20K versus 0 expected.  The Unemployment Rate was certainly not favorable as it dropped to 9.7% instead of rising to 10.1% as expected.  Average Hourly Earnings was inline with expectations at 0.2% and Average Workweek rose to 33.9 hours from 33.2 hours, the latter being what was expected.  Overall, mixed report but mostly unfavorable for MBS prices, hence why they plummeted initially, not unexpectedly by the way.  Nevertheless, MBS prices have bounced off what is now support and things are certainly looking better. 

What does this mean for Mortgage Rates?  Mortgage rates ticked higher initially this morning, but are edging lower again and appear to be set to move even lower from here though the future still remains uncertain.

Locking Stance: CAUTIOUSLY FLOATING    Mortgage Bonds: +31bp

Mortgage backed securities fell 23 basis points yesterday, slightly higher than their lows, but today are making another attempt to break the sideways pattern that has formed, once again towards the positive side.  News today, along with data, has provided the boost.

If you remember yesterday, I mentioned that the nation’s debt load was forecast to reach the new (just authorized) cap by the end of February.  Well, today we see Standard & Poor’s issuing another warning that the US is in jeopardy of losing its Triple-A Credit Rating.  If you are not sure what that means, think of yourself applying for a mortgage and seeing your credit rating drop just before you close.  The result you see is being required to pay more interest, possibly not even being approved.  While the US will likely still be able to borrow money (or at least keep the printing presses running), the cost will likely run higher and creating more problems.  If you would like to hear my political views on the subject, let me know and I will get them up at Florida Mortgage Report, which has been taking an extended break.

Enough of talking debt and let’s get to data.  This morning saw another climb in Jobless Claims.  Jobless Claims were higher than expectations of 455K with the results coming in at 480K, bringing the 4-week moving average to 468.75K.  Continuing Claims are once again climbing which is another problem with our “recovering economy”.  This also brings into question exactly what tomorrow’s Jobs Jamboree is going to bring to the table.  Productivity and Costs was also released providing mixed data.  Productivity was below expectations of 7.0%, coming in at 6.2%, down from 8.1%.  Labor Costs were also reported below expectations, coming in at –4.4% versus –3.8%, helping ease inflation fears slightly.

For you “techies”, like myself, the charts are painting a picture that shows traders can’t decide which way to go, trapped in a fairly narrow range and trying to break out.  Today’s jump higher in MBS prices gets them above their 50-day, and even their 100-day moving averages.  Adding to the positives in the charts is the fact the 25-day MA is set to pierce through the 200-day MA in the next day or so.  That means that so long as MBS prices can hold above their 100-day MA, we may be seeing the beginning of an uptrend in MBS prices, meaning lower mortgage rates.  Stochastic indications remain in the overbought spectrum but are on the bottom side and allow for MBS prices to move higher as well.  It is still far too early to say we have broken into an uptrend, but I recommend floating for a bit just in case.

What does this mean for Mortgage Rates?  Mortgage rates are edging lower today and are showing a potential to keep going lower.  The outlook is still far from certain, but it is showing a better picture.

Locking Stance: LOCKING    Mortgage Bonds: –12bp

Mortgage backed securities managed to edge slightly higher yesterday and ended the day up 9 basis points.  In the report yesterday, it was mentioned that today was the beginning of the “fun”, or potentially the “nail in the coffin” for MBS prices.  Well, so far it looks like the “nail in the coffin”.

This morning’s ADP Employment Report, the forecaster for Friday’s Jobs Jamboree, came in a little better than expected, at –22,000 versus –30,000.  Well, these days we are seeing that any report that is better than expected in favor of a recovering economy is considered a good report, even if it is still a negative one.  In other words, an economy that is shrinking less than expected is seen essentially as if we are in an economic recovery.  There was some good news in the MBA Purchase Applications report as it showed a 10.3% increase in Purchase Applications and a 26.3% in Refinance Applications.  The Treasury made their announcement of the upcoming auctions, indicating the following auction amounts…

• $40B in 3-year T-Notes
• $25B in 10-year T-Notes
• $16B in 30-year T-Bonds

In the news was the fact that the nation’s debt, which just had its debt cap raised this month, is reportedly forecast to hit the new cap this month!!!  Certainly not a good sign.

What does this mean for Mortgage Rates?  Mortgage rates are edging higher today and may continue to do so.  The outlook remains uncertain as we may still see a sideways pattern, but current momentum is for higher mortgage rates.

Locking Stance: LOCKING    Mortgage Bonds: 0bp

Mortgage backed securities continue to be unable to mount any type of successful attempt to break resistance of the falling 50-day MA, which is now below the 100-day MA.  As mentioned before, this signal is indicative of the beginning of a new downtrend if it continues, which seems to be the path of least resistance, no pun intended.

Pending Home Sales showed a glimmer of hope as the numbers rebounded sslightly, up to 96.6 from 96.0.  Tomorrow will be the beginning fo the real fun, and also the potential "nail in the coffin" for MBS prices, as we begin the Jobs data with the ADP Employment Report, which pretends to forecast the results of Friday’s Jobs Jamboree.  We will also see the next big set of Treasury Auction Announcements, including the 3-year and 10-year T-Note auctions and the 30-year T-Bond auction coming up.  "The Captain has turned on the seatbelt sign as we are expecting some turbulence up ahead."

What does this mean for Mortgage Rates?  Mortgage rates are holding steady today, though the outlook is again turning negative, even if uncertain.  The next few days will clearly tell the future.

Locking Stance: LOCKING    Mortgage Bonds: -16bp

Sorry for the delay in getting this report online, but I am in Brazil and was without the internet for a while.  I hate when that happens, which fortunately is not very often.  Nevertheless, as I thought might happen last week, I am back to my locking stance as things could get ugly once again.  Let me explain some more…

Data this morning included the Fed’s favorite gauge on inflation, the Personal Consumption and Expenditures (PCE) Index, a part of the Personal Income and Outlays report.  Core PCE was reported inline with expectations at 0.1% though the year/year change edged slightly higher to 1.5%.  Not a bad report overall, though hints of rising inflation can be seen and we are now in the bottom edge of the Fed’s 1.5% – 2.0% target range.  Personal Income was higher than expected, coming in at 0.4% versus 0.3% and the year/year change rose to 0.5%.  Personal Spending was lower than expected at 0.2% versus 0.3%, though its year/year change rose to 4.0%.  The reports overall weighed on MBS prices.  The ISM Manufacturing Index, however, came in considerably better than expectations with a 58.4 versus the 55.0 expected.  The Treasury auctions still are seeing strong demand and that is keeping mortgage backed securities from collapsing, but their demand is easing slightly.

OK, looking at the charts, we are now off another "peak" which was below the last "peak" and appears to be the beginning of a downtrend.  It is still too early to say that convincingly, but stochastic indications remain in the overbought spectrum, indicating the need for MBS prices to edge lower.  Add to that the fact that the 50-day has now crossed below the 100-day, a negative sign of things to come.  The bottom line is that the glimmer of hope we saw begin to shine as the week ended may be getting snuffed this week.

What does this mean for Mortgage Rates?  Mortgage rates are seeing pressure to rise and the outlook is once again turning ugly.  We are back to just a glimmer of hope for lower mortgage rates, and even that may get extinguished this week.

(this report is also available at MBS Commentary)

Locking Stance: LOCKING    Mortgage Bonds: -12bp

Mortgage backed securities are actually showing some strength today, being down only a few basis points after this morning’s data.  I still do not like the charts, but at least during trading today we hit that solid retracement level.  That means this could be the beginning of the resumption of a sideways pattern, or possibly even and uptrend in MBS prices, aka lower mortgage rates.  It is still too early to tell for sure, and there are still negative signs in the charts, hence my lack of change in stance thus far.

Today, as mentioned already, saw some data plays that typically move the markets, and they did just that, initially.  GDP started it off, well after Donald Kohn began his speech this morning.  Real GDP beat expectations with a 5.7% versus 4.5% expected.  That is not good news for MBS prices, but there was a ray of hope in that report.  The GDP Price index, aka Chain Deflator, was lower than expected at 0.6% versus 1.3% and thaat indicates tame inflation.  The Employment Cost Index (ECI) was slightly better than expected, however, with a 0.5% versus 0.4%.  The year/year change remained at 1.5%, so it was not bad news for mortgage bonds.  Then came Chicago PMI’s results, which beat expectations with a 61.5 versus 57.0, a blow to MBS prices.  And finally Consumer Sentiment beat expectations, keeping up with the trend for today, with a 74.4 versus 73.0 showing.  Overall, data was certainly not favorable for mortgage bonds, but they have been bouncing off support at their 200-day MA, which shows some hope.

What does this mean for Mortgage Rates?  Mortgage rates are edging higher today and may continue to rise.  However, the future is still uncertain and there is a glimmer of hope.

(this report is also available at MBS Commentary)

Locking Stance: LOCKING    Mortgage Bonds: -3bp

Mortgage backed securities are down today, but off their lows at the support of the 200-day MA.  While that is a good sign, the charts still indicate the likelihood they will move lower still.  Data has begun to "heat up" today and tomorrow will have a big player or two, leaving the possibility of a significant drop in MBS prices in plain view.

Today’s data thus far has been the weekly Jobless Claims and Durable Goods Orders.  Durable Goods Orders were well below expectations, coming in at 0.3% versus expectations of 1.6%.  The year/year rate is still higher than the last report, up to -3.1%.  The results are better when you exclude transportation as we saw an increase of 0.9% and the year/year rate is now positive at 0.5%, still nothing to get excited about, but will hurt mortgage bonds a bit.  Jobless Claims, however, are favorbale in the fact they were again higher than expected, coming in at 470K versus 440K.  The 4-week moving average is also back on the rise now, climbing to 456.25K.  With Jobless Claims climbing again, one would expect MBS prices to be rising more than they are, but perhaps traders are just awaiting tomorrow’s data.  Or is it this afternoon’s 7-year T-note auction?

What does this mean for Mortgage Rates?  Mortgage rates are holding fairly steady right now, but the outlook, while still somewhat uncertain, favors higher mortgage rates.

Locking Stance: LOCKING    Mortgage Bonds: –19bp

OK, I would typically write something regarding the FOMC Policy Statement and rate decision, but I am not going to do that here this time.  The reason is that I already did it on the new website, MBS Commentary. 

And what about those rate alert services that told you to float this morning and are now scrambling to issue their lock alerts.  In my opinion, if they truly understood the charts themselves, they would have been in a locking stance already, just as I have been.  Anyhow, if you want to see what I had to say about the FOMC Announcement, here is the direct link.