Samuel Scott Financial Group Headline News 8/18/2011
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NAHB Builder Confidence Unchanged in August. “Two out of three of the HMI’s component indexes posted marginal gains in August. The current sales conditions index gained one point to 16 – its highest level since March of this year – and the component gauging traffic of prospect buyers rose one point to 13 following two consecutive months at 12. However, the component gauging sales expectations for the next six months declined two points to 19, partially offsetting a six-point gain from the last month’s revised number. Regionally, the HMI results were mixed in August. While the Northeast posted a four-point gain to 19, the West registered a one-point gain to 15, the South held even at 17 and the Midwest posted a two-point decline, to 10.” NAHB Chief Economist David Crowe said “The uncertain economic climate and concerns about job security are discouraging many potential buyers from exploring a home purchase at this time. While buying conditions are very favorable in terms of prices, interest rates and selection, consumers are worried about what the future will bring, and builders are echoing those sentiments in their responses to the HMI survey.”
Federal Reserve Bank of New York’s Empire State General Economic index fell to minus 7.7 from minus 3.8 in July, weaker than the median forecast of zero, the dividing line between expansion and contraction. New orders fell to minus 7.8 from minus 5.5, and unfilled orders dropped to minus 15.2 from minus 12.2. The Employment index rose to 3.3 from 1.1, while prices paid index dropped to 28.3 from 43.3 while prices received decreased to 2.2 from 5.6.
US Bonds Converging With Japan Heralds Biggest Treasury Rally Since 2008. After last weeks wild ride across global financial markets, investors now have a some cautious optimism, sending Treasury prices lower in early trade Monday. Even so, UST bond yields are at the brink of converging with Japan’s for the first time in almost two decades, sparking the biggest returns for investors in Treasuries since 2008 while raising concern that America may be stuck in a prolonged period of below-par economic growth. Global financial strains, government fiscal austerity and a lack of jobs have led economists to slash estimates for GDP in 2012 to 2.4%, from 3% July estimate.
Markets Gird for Fresh Drama. As world leaders grow more worried about the global economy, some market analysts say stocks may be in for more volatility, in part because political leaders have been unable solve core issues afflicting many developed nations.
This Time, Maybe the U.S. Is Japan. Since S&P stripped the U.S. of its triple-A credit rating and the Fed said interest rates will be at near-zero until mid-2013, bond traders have been looking to Japan for guidance.
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June 8, 2011
MBA Mortgage Applications: Composite Index (includes purchase and refi) Slipped 0.4% last week, Refinance Index rose 1.3%, and the Purchase Index dropped 4.4%. The refinance share increased to 67.3% of total applications from 65.7%. Fixed 30-year mortgage rates averaged 4.54% in the week, down from 4.58% the week before, and the 15-year FRM fell to 3.67% from 3.78%, the lowest contract rate since October.
Treasuries Rise Before 10-Year Sale as Bernanke Says Stimulus Still Needed. Treasuries rose, pushing two-year note yield to .39%, the lowest level this year, after Fed Chairman Bernanke said record monetary stimulus is still needed to support the economic recovery. $21 billion auction of 10yr UST will be auctioned today and a $13 billion offering of 30-year bonds tomorrow. The Fed will buy $5 – $7 billion of debt maturing between 2015 and 2016 today under its $600 QE2 program that expires at the end of this month. Fed Funds Futures contracts showed the likelihood of an increase in the fed funds target by the March 2012 meeting fell to 22%, from 38% a month ago.
June 9th, 2011
Initial Jobless claims increased by 1,000 to 427,000 for the week ending June 4; and last week’s claims were revised upwards from 422,000 to 426,000. Claims through the second quarter have moved a notch higher than what was witnessed in February and March, consistent with other economic data that the recovery has lost some momentum. Continuing claims decreased by 71,000 to 3.676 million for the week ending May 28 from 3.747 million previously; this excludes the millions more on extended and emergency benefits.
The U.S. Trade Deficit declined 6.7% in April to $43.68 billion from a downwardly revised $46.82 billion the month before, unexpectedly contracting as exports hit a new high and purchases of oil fell off sharply. Exports increased to $175.6 billion in April from $173.4 billion in March, and imports decreased to $219.2 billion in April from $220.2 billion in March.
Wholesale inventories rose 0.8% in April after increasing by an upwardly revised 1.3% in March (previously 1.1%). The rise in inventories fell just short of the consensus expectation of a 1.0% gain. Sales rose by just 0.3%, a significant drop off from last month’s upwardly revised pace of 3.0% (previously 2.9%). The inventory-to-sales ratio rose from 1.13 to 1.14.
Beige Book: summary of economic conditions across the central bank’s 12 regional districts, “activity generally continued to expand since the last report, though a few Districts indicated some deceleration.” “Residential construction and real estate continued to show widespread weakness, except in the rental segment, where market conditions have strengthened and construction activity and development have picked up.” Rising food and energy prices are cutting into consumer spending on other items, the beige book said. “Consumer spending was mixed, with most Districts indicating steady to modestly increasing activity. Elevated food and energy prices, as well as unfavorable weather in some parts of the country, were said to be weighing on consumers’ propensity to spend.”
Treasury 10-Year Yields Touch 2011 Low on Signs America’s Economy Slowing, having touched 2.91% at 8:30 AM, but are now back at 2.95% at 10:30 AM. The Fed will buy $6 – $8 billion of debt maturing between 2016 and 2018 today as part of the final days of the “QE2″ program. Yesterday’s successful 10-year-note auction lead to buying of all UST maturities, except for the long bond, to new lows for the year. The two-year note touched 0.373% and the 10-year hit 2.931%, lowest since Dec. 6, and the 10-year note was 13/32 higher in price to yield 2.964%.
Home Builders’ Economist Lowers 2011 Housing Market Forecast. Builders are likely to break ground on 582,000 homes this year, down slightly from 585,000 in 2010 and a far cry from a peak of more than 2 million in 2005,
The State of the Nation’s Housing 2011 by The Joint Center for Housing Studies of Harvard University: After three consecutive years of record-low construction levels, the vigor of the recovery in housing now hinges on a return of demand. The lingering consequences of the recession and financial crisis, however, are thwarting a broader recovery. “While the sharp declines in both home prices and interest rates have left homes in many places more affordable than they have been in decades,” says Eric S. Belsky, Managing Director of the Joint Center, “stubbornly high unemployment and tightened lending standards have limited the ability of many first-time buyers to capitalize on the situation.” Although the housing industry continues to face significant challenges, one bright sign beginning to appear is in the rental market. “Rental housing markets are tightening and may begin to lead a modest recovery in housing construction this year,” says Chris Herbert, Research Director of the Joint Center. “But we need sustained employment growth to spur a broader increase in housing demand and a recovery in home sales.”
ECB’s Trichet Signals July Interest Rate Increase. European Central Bank President Jean- Claude Trichet signaled the bank intends to raise interest rates next month, saying “strong vigilance” is warranted to contain inflation.
Bearish Forecasters Yield to Reality. Recent stumbles in the economy, combined with a UST rally, have driven Wall Street forecasters to ratchet down their forecasts for benchmark 10-year yields. The median forecast for the 10-year note’s yield is 3.6% at the end of December, up from 2.964% on Wednesday.
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Retail Sales climbed 0.5% in April, less than the 0.6% expected, however March sales were revised to up 0.9% from 0.4%. Higher oil prices lead to a 2.7% surge in gas station sales following a 4.1% increase in March. Excluding gas stations, sales of all other merchants rose only 0.2% in April.
Producer Price Index rose 0.8% in April, after a 0.7% gain in March, and the Core PPI Index (ex-food and energy) rose 0.3% for the second consecutive month. The overall gain in April was driven by a 2.5% rise in energy costs, including a 3.6% jump in gasoline prices, increasing at their fastest annualized rate in more than two-and-a-half years.
Jobless Claims decreased by 44,000 to 434,000 last week, though they remained elevated and the overall picture for the jobs market is uncertain. The four-week moving average of new claims, considered a more reliable indicator because it smoothes out volatile weekly data, climbed by 4,500 to 436,750 in the week ending May 7. A Labor Department economist said Alabama reported a “sizeable rise in claims” due to natural disasters in the state, though the jump didn’t have a major impact on national numbers.
Treasuries Fluctuate Before a $16 Billion 30-Year U.S. Securities Auction. Continued weakness in commodities and global equities led U.S. Treasury prices slightly higher in early trading, pushing yields back to near their lows of the year. Currently, UST prices are unchanged. Falling commodities prices and a stronger U.S. dollar are also easing concerns about inflation.
Bernanke Says Fed to Propose Financial Rules. “We anticipate putting out a package of proposed rules for comment this summer,” Bernanke said in testimony prepared for a Senate Banking Committee hearing on the progress of the Financial Stability Oversight Council. The rules will cover areas including “enhanced” capital requirements and annual Fed stress tests of the Dodd-Frank Act of 2010.
Stagnation Worries Top Those on Inflation. The story markets are telling doesn’t feature an inflationary villain—but the specter of economic stagnation.
Freddie Mac: 30-Year Fixed-Rate Mortgage Drops to 4.63%, the lowest level for 2011 after declining 4 weeks in a row. The 15-year fixed averaged 3.82 percent. “Distressed homes are suppressing house prices in many local areas. The National Association of Realtors reported these homes sold at a 20 percent discount in the first quarter of this year and accounted for 39 percent of all existing home sales, up from 36 percent in the first quarter of 2010. As a result, only 22 percent of metropolitan areas exhibited higher median sales prices from a year ago, compared to 51 percent in the fourth quarter of 2010.” According to Frank Nothaft, vice president and chief economist, Freddie Mac.
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Jobless Claims jumped by 43,000 to 474,000 in the week ended April 30, the most since August and much higher than the expected forecast of 19k to 410,000. A spring break holiday in New York, a new emergency benefits program in Oregon and auto shutdowns caused by the disaster in Japan were the main reasons for the surge, a Labor Department spokesman said as the data was released to the press. Continuing claims rose by 74,000 in the week ended April 23 to 3.73 million.
Nonfarm business productivity rose at a 1.6% annual rate in 1Q2011, after a 2.9% increase in 4Q2010, originally reported 2.6% rise. Unit Labor Costs climbed 1% rate after dropping 1% the prior quarter.
Treasuries Advance on Outlook for Slower Economic Growth, Less Inflation. The 30yr bond price advanced for a sixth day, and pushed the yield to 4.30% the lowest level since December 8th. The yield on the 10-year note fell three basis points, or 0.03 percentage point, to 3.19%. Focus will be directed at tomorrows Non Farm Payroll report, with the consensus estimate of an increase of 185,000 workers to payrolls in April, and an unemployment rate at 8.8%.
Crude Oil Futures Decline a Fourth Day on Signs of Slower Economic Growth. Oil fell a fourth day, the longest losing streak in eight weeks, Crude oil for June delivery lost as much as $3.55 to $105.69 a barrel after U.S. jobless claims rose, bolstering concern that economic growth and fuel demand will decline in the world’s biggest crude-consuming country.
Fed Presidents Signal Employment Growth Too Slow to Remove Record Stimulus . Two Federal Reserve regional bank presidents indicated that the central bank won’t remove record stimulus soon, saying the Fed is missing its goal for full employment and inflation isn’t a long-term risk.
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The National Association of Home Builders/Wells Fargo Housing Market Index fell by a point to 16 in April, the level it’s been at for five of the last six months.. “While builders in some areas are starting to see a pickup in traffic of prospective home buyers, many consumers remain skittish about the health of the housing market and overall economy, particularly in view of recent legislative and regulatory proposals that could make it much harder to get a mortgage,” noted NAHB Chairman Bob Nielsen. The seasonally adjusted index is calculated so any number over 50 indicates that more builders view sales conditions as good than poor — which hasn’t been the case in five years.
Stocks, 10-Year Treasuries Fall as S&P Reduces U.S. Outlook. Standard & Poor’s Ratings Service cut the nation’s long-term credit outlook to negative. Ten-year Treasuries erased earlier gains, 30yr UST’s are down about 1 point, and the short end of the curve remained well-bid. The announcement caught a fairly sleepy market off guard as investors were getting ready for a shortened week ahead of the Easter holiday.
Text of S&P’s downgrade of U.S. ratings outlook: it affirmed its ‘AAA’ long-term and ‘A-1+’ short-term sovereign credit ratings on the U.S. Standard & Poor’s also said that it revised its outlook on the long-term rating of the U.S. sovereign to negative from stable. “More than two years after the beginning of the recent crisis, U.S. policymakers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures,”
Bernanke Briefings May Offset Fed Hawks With Words as New Tool. When Federal Reserve Chairman Ben S. Bernanke convenes his first press conference next week, he may emphasize a point the markets seem to have forgotten: He’s serious about keeping interest rates low for an “extended period.”
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