Good Morning All. Jobless Claims have been released....
INITIAL JOBLESS CLAIMS: In the week ending July 17, the advance figure for seasonally adjusted initial claims was 464,000, an increase of 37,000 from the previous week's revised figure of 427,000. The 4-week moving average was 456,000, an increase of 1,250 from the previous week's revised average of 454,750. The advance number of actual initial claims under state programs, unadjusted, totaled 498,022 in the week ending July 17, a decrease of 13,113 from the previous week. There were 585,575 initial claims in the comparable week in 2009.
The largest increases in initial claims for the week ending July 10 were in New York (+18,047), Indiana (+9,094), Michigan (+7,758), Georgia (+6,268), and Florida (+5,568), while the largest decreases were in New Jersey (-10,585), California (-8,034), Massachusetts (-3,343), Illinois (-1,327), and Oregon
(-987).
CONTINUED CLAIMS: The advance number for seasonally adjusted insured unemployment during the week ending July 10 was 4,487,000, a decrease of 223,000 from the preceding week's revised level of 4,710,000. The 4-week moving average was 4,567,000, a decrease of 21,500 from the preceding week's revised average of 4,588,500. The advance unadjusted number for persons claiming UI benefits in state programs totaled 4,581,351, an increase of 186,572 from the preceding week. A year earlier, the rate was 4.7 percent and the volume was 6,256,960.
EXTENDED & EMERGENCY BENEFITS: Extended benefits rose by 35,952 to 445,394. Emergency benefits fell by 404,049 to 3,483,940
Plain and Simple: Although both Initial Jobless Claims and Continued Claims were WORSE THAN EXPECTED, economists will discount the data because the Congress has yet to officially extend expired jobless claims benefits (for those who havent reached 99 weeks yet). This is represented in the decline in the number of extended and emergency benefits. Folks who lost their unemployment benefits are probably re-applying just to see if they can sneak one by the ETA. More than anything jobless claims are still hovering around the same 450,000-480,000ish range they've been stuck in since January. We need to see 'em below 450,000 if the headline NFP print is to show positive progress.
WHO WANTS TO HIRE WHEN NO ONE KNOWS HOW FIN REG REFORM WILL BE INTERPRETED BY REGULATORS? WHO WANTS TO HIRE WHEN 1 YEAR OUTLOOKS ARE CLOUDIER THAN CHEECH AND CHONG'S BIG GREEN VAN. Just another reminder of the long slow recovery....
Stock futures moved a few handles lower as the data flashed but that didn't hold. S&Ps are at new intraday highs, currently bid +14.25 at 1078.25. Volume is pathetic.
Looking at recent swings in equity futures, chopatility is obvious. In the last 22 days S&P futures have bounced around a 100 point range, sometimes jumping from one major pivot to another in one fell swoop. This happened yesterday afternoon as Ben Bernanke tiptoed around carefully worded Senatorial probes and risk markets went "bid wanted" (decline not so much a factor of selling as much as it was a factor of no one buying)
In my opinion Ben didn't really share anything new with us, the most important observation I took away is that the Federal Reserve is uncertain about how the cookie will crumble, but they feel they've put the building blocks in place to construct a recovery. If conditions head south and more jobs are lost, the Fed stands at the ready to act if needed. (not sure how they will stop firms from firing if consumer demand contracts further).
Anyway....technically speaking I love using Fibonacci retracements, and that's what you see below. The numbers on the left side of the chart are your major pivot points. Hopefully you recall me saying something along the lines of "If 1080 is broken on the upswing, 1100 isnt far off in the distance." You can see why I say that when looking at the volatile price action between 1075 and 1100. If the non-committal, short squeezed, technically driven rally "pretends and extends", 1090 is really the only level standing in the way of a retest of 1100.
While market makers and professional day traders ride the ups and downs in equities, a herd of retail investors and duration hedgers are still huddled together in benchmark Treasuries and other risk averse assets like Agency MBS and Agency debt securities (spread products in high demand).
Whether it is driven by general uncertainty or deflationary discounts, THE FLIGHT TO SAFETY IS STILL IN STYLE.
The 2-year note is in record breaking low territory and 10s are holding steady below 3.00%. I first presented the chart below a few weeks ago. Overlaid are fibonacci retracements and an internal trend channel that has served our pivot point purposes quite well. Yesterday 10s rallied all the way down to 2.85%...which is the 23% retracement of the all time low yield seen at the height of panic is late 2008.
Benchmark 10s are experiencing some profit taking as risk rallies this morning, but volume is low and price action is indicative of a "bid wanted" market (lack of willing buyers). The 3.50% coupon bearing 10 year note is currently at its price lows/yield highs of the session, -0-11 at 104-29, up 3.9bps in yield. The belly of the curve is the worst performer. Both 5s and 7s are up a whopping 4.4bps (note sarcasm).
Rate sheet influential mortgages are performing well despite higher benchmark yields. The September delivery FNCL 4.0 is -0-04 at 101-18 and the FNCL 4.5 is -0-02 at 103-21. The secondary market current coupon is 1.1bps higher at 3.735% (the street has it lower than I do) and yield spreads are tighter.
This is the guidance I offered on Monday...
On the surface, the environment is still ripe with doom and gloom. Talking heads are discussing the underlying strength of mixed earnings releases out of the financial sector, headlines are focused on contracting consumer confidence and a slowing economic expansion, plus no one knows how the passage of financial reform will really affect specific industries.
This BIG PICTURE uncertainty favors floating interest rates on a 45 day timeline, but you better be ready to deal with added amounts of chopatility. The day to day movements of this market are still driven by dealers and professional profit takers, not a herd of retail investors on Main Street. This implies we should continue to expect stocks to bounce around a wide price range, something that could prove detrimental to short-term rate floats if risk goes on special and equities go on a run.
Plain and Simple: Uncertainty is the only certainty and short-term tactical (non-committal) biases determine directionality. It's still a trader's world and we're still living in it! Be ready for chopatility.
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Almost everything I wrote on Monday still applies to the current environment. There is one problem though, because mortgage rates are near all time lows, more and more consumers (not as many as last year) are coming down off their fences and applying for a refinance. Refinance demand is driving activity in the mortgage market. The MBA's refinance applications index hit a 14 month high last week! This means lenders are operating near full-capacity. When this happens, lenders generally let loan pricing worsen to slow down new loan production. This is playing out right now in the primary mortgage market...
This makes lock/float decisions a little more difficult. I'm not saying stop watching the MBS market, but I am saying you should be paying extra attention to turn times. If your operation/lender is increasing turn times...watch out, pricing may suffer. CITI, CHASE, AND WELLS all have a huge margins baked into their rate sheets right now (the spread between mandatory and best efforts is super wide).
I think we are nitpicking though...regardless of recent rebate reductions, loan pricing is reeeeeeeally aggressive. 4.50 is best execution on a no cost loan.
MBS Market Alerts
