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|Thursday, July 05, 2012
Treasuries and mortgages opened better this morning; at 7:00 the 10 yr note price was up 15/32 from Tuesday’s close with its yield at 1.59% -4 bp; mortgage prices not doing much in early activity. Overnight the ECB cut its base rate by 0.25% to 0.75%, it was generally expected but really doesn’t matter much in terms of the euro debt crisis. China also cut its rates for the second time in a month. Early activity had the US stock indexes about unchanged from Tuesday. China cut interest rates and allowed banks to offer bigger discounts on their lending costs, intensifying its efforts to reverse a slowdown. China’s one-year lending rate will fall by 31 basis points and the one-year deposit rate will drop by 25 basis points with effect from tomorrow, the People’s Bank of China said. Banks can offer loans of as much as 30% less than benchmark rates.
The Bank of England restarted bond purchases two months after halting its expansion of stimulus as the deteriorating outlook spurred policy makers to ramp up efforts to kick start a recovery. The Monetary Policy Committee raised its asset-purchase target by 50 billion pounds ($78B) to 375 billion pounds and said the purchases will take four months to complete.
China, the ECB and the BOE all made rate moves today; almost looks like a coordinated move but that’s not likely. Given the deteriorating global economy rate cuts were generally expected, the timing was the uncertainty.
Weekly mortgage applications fell last week according to the MBA. The overall index declined 6.7%. The purchase index for the June 29 week is up 1.0% vs. two prior weeks of small declines. The refinance index is down 8.0 % reflecting a significant drop in applications for government loans. The 30-year rate, at 3.86% for conforming loans ($417,500 or less), is down 2 basis points in the week for a new record low.
At 8:15 ADP, the payroll people, reported their view of non-farm private jobs in June. It was expected to show an increase of 105K private jobs; as reported ADP is saying private job growth was +176K, much higher than traders were thinking. After a stronger open in treasures prices declined frm +15/32 to +9/32 ahead of the next data point, weekly jobless claims. Interesting that the stock indexes didn’t jump much on the jobs data.
Weekly claims at 8:30 expected -1K to 385K, was another better report than thought. Claims dropped 14K to 374K the lowest claims in a month. Last week’s claims followed the recent trend of revisions upward, from 386K to 388K---not much. Continuing claims increased to 3.306 mil frm 3.302 mil. The 4 week smoothing average on claims fell 1500 to 387,750. On that report treasuries gave up more of the early gains, up just 8/32 at 1.62% frm the low early at 1.59%.
Keeping up the running activity this morning; at 9:30 the DJIA opened -60, NASDAQ -9; the 10 yr note +3/32 at 1.62% -1 bp, MBS 30 yr price unchanged at 105.09 (105.28 bp). So far this morning there has been a lot of price volatility in all markets; crude oil higher earlier, lower at 9:30, stock indexes lower early then higher then opening lower. The rate markets were strong at 8:00 with the 10 yr yield at 1.59% down 4 bp, mortgage prices higher early then back to unchanged at 9:30.
The last data today; the June ISM services sector index; expected at 53.0 frm 53.7. The index declined to 52.1 the lowest reading this year. The figures follow July 2 data that showed manufacturing shrank for the first time in almost three years as the global economy weakened. The ISM manufacturing index fell to 49.7 in June from 53.5 a month earlier.
Trade volume is light this morning with many taking the day off and ahead of tomorrow’s employment data. Prior to the ADP this morning the estimate was an increase of 100K jobs, 105K private jobs with the unemployment rate unchanged at 8.2%. For over a month now long term rates, including mortgage rates have been tied in a narrow range with no trend movement. The benchmark 10 yr has strong resistance at 1.56% and equally strong support at 1.68%; when the range is broken we would expect a swift move in the direction of the breakout.
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