Phoenix Mortgage Broker Daily Update – September 28, 2009

Hold rate locks and continue floating this morning; while not much change from Friday’s closing levels, holding in the face of a strong stock market this morning. Keep focused on our rate alerts; we have nice profits from floating last week and we are not willing to give them back on any potential reversal in sentiment.

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Treasuries and mortgages opened fractionally lower this morning after two strong days to end last week, taking the 10 yr to 4 basis points from its key resistance. At 8:30 the 10 yr -2/32, mtgs -2/32, the DJIA futures +20. At 9:00 the 10 unchanged, mtgs -1/32 and the DJIA +27. At 9:30 the DJIA opened +33, the 10 yr +1/32 and mortgages unchanged. (see below for 10:10 levels)

No economic data to think about today, but the week has a lot to consider with the Sept employment anchoring all of it on Friday.

Still no confidence that the equity markets are ready to roll over in the long-awaited and overdue correction that even the most bullish are expecting. Last week the three key indexes were lower on the week and there was a technical reversal on the DJIA but the NASDAQ and S&P, broader measures, didn’t demonstrate that weakness. After today the markets will have a lot to work from.

This Week’s Economic Calendar:

Tuesday;

9:00 July Case/Shiller Housing price index (-14.2%, June -15.44%)

10:00 Sept consumer confidence index (57.0 frm 54.1 in August)

Wednesday;

7:00 weekly MBA mortgage applications

8:15 Sept ADP jobs estimate (-200K)

8:30 final Q2 GDP (-1.2% frm -1.0% on the preliminary report)

9:45 Sept Chicago purchasing mgrs index (52.0 frm 50.0, 50 is equilibrium)

Thursday;

8:30 August personal income and spending (+0.1% on income, +1.1% on

spending)

Weekly jobless claims (+5K to 525K)

10:00 August construction spending (-0.2%)

ISM manufacturing index (54.0 frm 52.9, 50 is equilibrium)

August pending home sales (+1.0%)

11:00 Treasury will announce the details next week’s 3 yr, 10 yr and 30 yr auctions (likely in the neighborhood of $72B)
2:00 Sept auto and truck sales

Friday;

8:30 Sept non-farm job losses (-180K)

Sept unemployment rate (9.8% frm 9.7% in August)

10:00 August factory orders (+0.5%)

The Fed will raise its target interest rate for overnight loans between banks by April, based on futures data compiled by Bloomberg. Central bank officials said in a statement last week after leaving borrowing costs unchanged that data indicates “economic activity has picked up following its severe downturn.” Most dealers forecast that yields will remain near current levels into 2010 with consumer prices falling 1.5% from a year earlier and foreign buyers increasing the pace of Treasury purchases as issuance of alternatives such as so-called agency securities decrease. We report it, but we don’t agree with it yet; yes the economic bottom has been achieved but a recovery isn’t likely to be at the pace markets and The Street are believing now. We do not believe the markets are correctly anticipating increased consumer spending, since consumer spending accounts for most of the growth in GDP, markets are expecting consumers are going to return to increased discretionary spending, we disagree but won’t fade the market for now.

The stock market is rallying this morning, fortified with Xerox’s announced purchase of Affiliated Computer Services for $6.4B. Not important that its Xerox or the purchase itself; it is however juicing up thoughts that acquisitions and mergers will increase. Mergers and acquisitions are evidence of recovery in the business sector and increasing optimism that the road ahead is paved with opportunity.

With demand for US Treasuries strong, interest rates are as low now as back in early July. The 10 yr note found very strong support at 3.50%, now trying to test its strong resistance at 3.28%. A full calendar of data this week with employment the key on Friday. Technically the bond and mortgage markets are bullish, but equity markets still rule.

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