Another week where I am actually in the office today, very strange indeed. And stranger still is what continues to happen in the markets.
Last week, there was plenty of data to boost mortgage bonds as virtually every report favored mortgage backed securities and would normally have sent them into rally mode. However, this past week was more bailout news as I mentioned would happen, and that overshadowed all of the data and let emotions run there course once again, leaving the markets somewhat in question as to their real direction.
Taking a look at the news, the week started off with the House shooting down the bailout bill and that sent stocks into an abyss. Of course, as is typical, they rebounded the very next day. The Senate then passed the bailout bill, which got passed by the House and President Bush signed it into law before the week could finish. A strange thing happened, though. Stocks plummeted and bonds rallied was the bill was passed into law. Why? The stock market wants a Fed Funds Rate cut of up to 1.00% now.
As for data released last week, nothing compares to Friday’s report which showed the jobs front still getting worse. While some of the data was favorable, the overall picture on jobs was bond friendly. Other favorable reports included PCE and the ISM Index. Monday’s PCE release which still showed inflation, but that overall it was “in check” at least for now. The ISM Index released Wednesday was worse than expected, favoring bonds as well. The only unfavorable report was the Chicago PMI, as it was slightly better than expected. Overall, throughout the week you could see that the data didn’t really matter much as traders focused on news and let their emotions take over.
This week will not see much in the way of data with the only real player being the FOMC Minutes, so technical indicators will takeover as will emotions continue to rule the markets. That will likely spell good news for mortgage rates as stock traders seem very unhappy with the bailout bill and are asking for even more action. Here is the breakdown of this week’s data…
- Monday: No data, just news
- Tuesday: FOMC Minutes (2:00)
- Wednesday: Crude Inventories (10:30)
- Thursday: Initial Jobless Claims (8:30)
- Friday: Balance of Trade (8:30)
Taking a look at the charts, and if you were following my daily updates at Florida Mortgage Daily, you would realize that bonds ended the week on a good note, managing to break back above their 25-day moving average. By doing so, that allow for them to resume rally mode, which appears to be the case today. Stochastic indications show a crossover, meaning buyers of mortgage backed securities are returning in force and that should help propel bond prices higher, sending mortgage rates lower.
This week will certainly be one, but last week set bonds up for another leg higher, so floating looks to be the way, at least as the week starts out. Caution must remain as traders emotions can overcome charts and data, just as we saw last week. If traders “feel” stocks are better than bonds all of a sudden, be ready for the change up.
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{ 5 comments… read them below or add one }
Bond buyers returning in force? Not much of a force. I’ll let you know when wholesale channels open up again but it is not on the horizon. Robert writes well and many readers may miss the pivotal point of his article and the pivotal point of the global economy as well as the home economy. The quote of the year may well be, “as will emotions continue to rule the markets”. Note how the children of the street react to mediocre news then amplify it in multiples and you will see losses and gains like, well, like today. Hold on tight, America, this could be a bumpy ride - a good day trader could become very wealthy in a single day in the flips. Or not.
Why exactly is Wall Street unhappy with the bailout bill? I mean, they were literally begging for it, and everyone and his aunt was predicting doom if the bill wasn’t passed. If $700 billion isn’t enough for them, then what is?
Ken - They are not much force, that is for sure, but the stochastics are turning more favorable, and thanks for hitting my point home.
Ling - Traders want a cut in the Fed Funds Rate by as much as 1.00%. I doubt they will get that much, but an emergency cut of up to .50% is rumored to be in the works, appeasing traders again.
I hear the Rumor as well. good be as early as this week to get the rate cut. but dont expect it to affect mortgages to much. it will most likely help ou thte short tem loans and adjustables.
Looks like Bernanke was telegraphing the Fed’s moves yesterday.
Let’s hope today’s emergency 0.5% Fed Funds Rate and Discount Rate cut, in coordination with the European Central Bank, Bank of England, and the central banks of Canada, Sweden and Switzerland helps give the credit markets some breathing room.
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