The story this morning is talk that the dollar may be basing and improving, the dollar was stronger yesterday against the euro and this morning firmer again. If in fact the dollar does make a run higher it isn’t good for the US markets. Both stocks and bonds have been supported by the declining dollar recently, attracting foreign investors and bolstering stocks particularly companies that generate income from exports to countries that arte recovering more rapidly than the US (Asia).
There are no economic releases today. The bond and mortgage markets will be focusing on next week’s Treasury auctions beginning Monday with $44B of 2 yr notes; Tuesday $42B of 5 yr note and Wednesday $32B of 7 yr notes. Over the past four months Treasury auctions have seen very strong demand on the weaker dollar; foreign buyers buying US debt and assets on the cheap dollar. If the dollar is expected to improve in the near term; the demand for US debt and assets will diminish somewhat. There isn’t any immediate evidence yet that the buck will improve but in the trading world no market can sustain a directional move forever without some retracement and that is what markets are considering now.
The foundation under the idea that the economy is on the road to recovery is a very weak one. Until this week markets were “convinced” the housing sector was on the path of recovery and had seen its worst. With data this week the worm is turning for the moment, but as noted the foundation of opinion is mushy in either view. The outlook for the home market dimmed this week as residential construction and mortgage applications fell and loan delinquencies reached a record. Oct housing starts were down a whopping 10.6%, building permits down 4.0%. The weekly MBA mortgage applications fell 2.5% overall with purchase apps down 4.7% and re-fis down 1.4% with mortgage rates as low as we have seen this year. The MBA reported yesterday the share of all types of mortgages in Q3 with one or more payments overdue climbed to a record seasonally adjusted 9.64%. The foreclosure inventory increased to 4.47% from 4.3%. Both were the highest in 37 years of data, and likely higher going back further but no data is available. New foreclosures on prime fixed-rate loans increased to 0.71% from 0.67%, while FHA foreclosure starts rose to 1.31% from 1.15%. Sept existing home sales however, were the strongest in 2 yrs with the $8K tax credit, but unemployment increasing is forcing more foreclosures.
Another bubble coming? Not likely, but the talk is increasing that with the Fed intent on keeping interest rates at zero for that extended period the Fed mentions is beginning to worry some that the asset bubble in stocks may be out-pacing the realty of a bottom in the economy. Housing markets are still not recovering and actually may be weakening further. Unemployment is going to continue to increase and consumers have shown little desire to spend. Banks are about to slap it to users of their credit cards and continue to cut off or lower credit limits. The policy is raising the “systemic risk” of new asset bubbles, Bill Gross, who runs the world’s largest bond fund at Pacific Investment Management Co., said in a note posted on the company’s Web site yesterday. Finance officials in Asia say a bubble fueled by the Fed’s low rates has already arrived. Next Friday is Black Friday leading into the teeth of Christmas shopping season; always closely monitored every year, this year will be even more so measuring the temperament of consumers for discretionary spending.
The bond and mortgage markets are likely to trade flat again today; no rally power so far today and not likely through the rest of the day. Watching the dollar trade and how equity markets are doing is all we have to do today. Technically not bearish near term but equally not too bullish either.
Market Minute information for November 20, 2009 provided by:
 Patsy Bailey Mortgage Banker |
 4801 Lang Ave NE Suite 100 Albuquerque, NM 87109 4001 Office Court Ste 603 Sante Fe, NM 87507 Cell: 505.715.3231 Office: 505.473.4045 ext.109 E-mail: patsybailey13@gmail.com |
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