Relevant Data For This Morning:
- Jobless Claims:
- Consensus : 375k.
- Actual 372k
- Thought just a hair better than expected, the expectations were for weakness to begin with, so this essentially confirms analysts predictions of a labor market that will continue to suffer and stormy waters ahead for the economy. The numbers, including the moving average which is a more important reading, are the lowest they've been since the aftermath of Hurricane Katrina. Not good for the labor market, but in general, good for MBS.
- Philadelphia Fed Survey
- Consensus : minus 15
- Actual: Minus minus 24.9
- This is a measure of business conditions in the Philadelphia Federal Reserve district and constitutes a good sample of manufacturing strength for the rest of the nation. The ISM numbers (institute for Supply Management), are usually predicted based on the Philly Fed Survey. Conversely, the Philly Fed Survey Numbers follow closely on the heels of the Empire State Survey, which, to quote myself, came in comically higher than expected earlier this week. So it should follow that the Philly Fed Survey might show unexpected strength. A zero reading indicates neither expansion nor contraction.
- This is a fall of more than 7points to -24.9 and challenges the
abysmall February 2008 low. The employment index was particularly bad,
down to -11 from -4. MBS can only benefit from this weakness, but will
that be mitigated by strong LEI numbers? Read on...
- LEI (Leading Economic Indicators)
- Consensus: plus 0.2% month over month (m/m) change
- Actual: plus 0.1% m/m
- This is an index that tracks 10 factors considered to be a good barometer of where the economy is going. The lower the number, the weaker the outlook.
- The fact that the reading came back positive is the good news for the stock market (bad news for MBS), but on the other hand it was slightly weaker than expected. This combination of factors will more or less prevent the LEI from having a drastic impact on trading today. The conference board did comment that this weak growth is likely to persist
- Corporate Earnings
- Merrill Lynch, with a loss of 2 billion and thousands of job cuts, is carrying the "weak earnings" flag for others such as Pfizer and Nokia
- In general, weakness in corporate earnings drives investors towards bonds which usually helps mortgage rates
- JP Morgan
- In a move similar to Lehman Brothers earlier this month, JP Morgan Chase has raised 6 billion dollars from the sale of bonds. They are paying over 7% interest.
- It's tough to gauge the impact that this has on MBS. On one hand, it allays fears about liquidity in the capital markets, but on the other hand, it leverages these mega firms at a slightly higher than standard borrowing rate (remember, "raising capital" simply means that JP is taking out a loan from investors in the form of bonds, which they will have to pay over 7% interest on). This is not an outrageous amount of interest, but it's more expensive money than these firms are used to. If liquidity stays steady and profits decline moderately, that would be our best case scenario for MBS. Time will tell.
- Run on the Bank?
- Well, not really, but the Bank of England is meeting very high demand for money as the effects of the global credit crunch are felt. This is similar to Bernanke making access to Fed money easier. Here's a good snapshot of the full story.
What Does It All Mean!?
Essentially, the MBS market is unchanged day over day.
5.5% coupon = 99-22 /23
6.0% coupon = 101-10 /21
Are You A Floater?
If you are sitting there, saying to yourself: "The market is CRAZY! how could those guys over on the stock floor run up the Dow so much when we are obviously in a recession?! These are just some outlying positive numbers on our general trend down... Nothing to get excited about. The MBS have declined too rapidly in the last few days to decline any further, and 12,700 is a ceiling for the Dow. As analysts and traders get jolted back to reality with weak earnings and poor indicators, MBS have nowhere to go but up as they are currently fairly cheap with respect to the last few weeks. Buy Buy Buy! So rates will come down down down!"
Then you might be a floater. Whether you are right or not, I can't say. There is just too much going on in this market for even the genius's to guess (if you find one, let me know). But in general, if you think the last three days 'blip' in the downturn is just that, floating will pay off if you are right, but you may have to wait a few weeks to get your pricing back.
In general I lean more towards this camp. I do think the economy will have to "wake up" and knock it off with this bullish over-resiliency. But on the on the other hand?
You Might Be A Locker...
If you are saying to yourself: "Finally, the market is stabilizing. Sure profits are bad, but that's to be expected with what we already know has been a near recessionary environment. Traders have already hedged their bets at the beginning of the downturn and now that the credit markets appear to be finding some footing thanks to the fed and their own auctions, they can come back out of the "safety zone" of bonds again. This also gives footing to the stock market in general. So we can now begin to improve slowly again."
Then you might be a locker. The MBS have ticked down 2/32nds since I typed this, so maybe the lockers will be right today!
At any rate (pun intended), it's too tough to take a stand. If you can keep an eagle eye on headlines, the Dow, and the 10 year treasury, it's OK to float this morning. The only risk to floating is an unexpected mortgage related headline (commonly referred to as "headline risk"). If we see any major swings on our end, we'll let you know ASAP. Certainly locking is the safest thing to do as the market demonstrates a slight upbeat trend, but if you think it's turning right back around, floating could pay off.
By the way, we just ticked down another 1/32nd. Are you sure you want to float? But DO consider that if your lender hasn't released rates yet this morning, that the current -3/32nds pricing will be reflected in the rate sheet, so if that's our floor for the day, floating will in fact, be the way to go. Look for updates today!