Thursday, December 30, 2010

Markets slide on higher mortgage rates

Dow is off 11, advancers barely ahead of decliners & NAZ pulled back 2.  Not a lot is going on with slooow trading.  Bank stocks were also weaker but the Financial Index is just below its 8 month high of 215+.


Value 214.63 One-Year Chart for S&P 500 FINANCIALS INDEX (S5FINL:IND)
Change   -0.45  (-0.2%)

The Alerian MLP Index shot up 3½ to the 364s, needing just another 1+ to set a new record.  This is coming on very thin volume, so it probably is from fund managers trying to show they have MLPs in their portfolios.  The index is up 79 YTD after rising 109 in 2009.  Don't expect a repeat in 2011!  Meanwhile the REIT index was down pennies in the 224s.  The yield on the 10 year Treasury bond rose 6 basis points to 3.40%, rate to the jobless data, reversing part of yesterday's decline.

Treasury yields:

U.S. 3-month
U.S. 2-year
U.S. 10-year

Alerian MLP Index   ---   2 weeks

Dow Jones REIT Index   ---   2 weeks

10-Year Treasury Yield Index   ---   2 weeks

Oil fell to the lowest level in a week after an industry report showed supplies increased for the first time since Nov.  $90 is a key line of support.  Gold fell after gaining 2.4% in the previous 3 days & gaining a whopper 300 YTD! 

CLG11.NYM...Crude Oil Feb 11...90.14 ...Down 0.98  (1.1%)

GCF11.CMX...Gold Jan 11......1,406.00 ....Down 7.10  (0.5%)

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Jobless Claims in U.S. Decreased to 388,000 Last Week

Photo:   Bloomberg

The number applying for unemployment benefits fell to its lowest point in nearly 2½ years.  Applications dropped 34K to 388K, the fewest since Jul 2008, according to the Labor Dept. The number of applications has either fallen or remained unchanged in 5 of the past 6 weeks.  Fewer than 425K seeking unemployment benefits signals modest job growth. However it is believed that applications need to fall consistently to 375K or below to bring down the unemployment rate. Applications peaked during the recession at 651K in Mar 2009.  The latest report covers the week with the Christmas holiday & is considered to be less reliable than most. One reason is that many state offices close for at least one day & other seasonal factors make the report more volatile.  The downward trend is encouraging.  The 4 week average dropped 12K to 414K, the lowest level since Jul 2008.  The graph below shows for most of the year applications hovered around 450K before dropping below that number in Nov. The 4 week average has fallen by more than 40K in the past 2 months, a sign that hiring could accelerate in the coming months.  The total number of people receiving unemployment benefits rose to 4.13M.  That doesn't include millions of unemployed workers receiving extended benefits under an emergency program set up during the recession. About 4½M people are receiving extended benefits for up to 99 weeks. All told, nearly 8.9M people obtained unemployment benefits, a very meaningful number although the charts below are clearly looking better in recent months!

Jobless Claims in U.S. Fall to Lowest Level Since July 2008

Jobless claims - 1 year

One-Year Chart for Claims (INJCJC:IND)

4 week average - 1 year

One-Year Chart for 4 Week Moving Avg (INJCJC4:IND)

# continuing to receive benefits -1 year

One-Year Chart for Unemployment SA (INJCSP:IND)

Pending Sales of U.S. Existing Homes Rose 3.5%

Photo:   Bloomberg

The number of people who signed contracts to buy homes rose in Nov, the 4th increase since contract signings hit a low in Jun.  The National Association of Realtors said its index of sales agreements for previously occupied homes increased 3.5% last month from a downwardly revised reading in Oct. Contract signings were up in the West & Northeast, but down in the South & Midwest.  Signings are 22.1% above the reading in Jun, which was the lowest level since the group began tracking the data in 2001. But signings are 5% lower than Nov 2009 when buyers were scrambling to close purchases to qualify for the first federal tax credit.  This year is shaping up to be the worst for home sales since 1997!

On the downside for the industry, the average rate on 30-year fixed mortgages rose this week to the highest level in 7 months, reflecting higher yields on long-term Treasurys.  Freddie Mac said the rate increased to 4.86% from 4.81% in the previous week. It hit a 40-year low of 4.17% last month.  The average rate on the 15-year loan rose to 4.20% from 4.15% -- the highest reading in 6 months! It fell to 3.57% in November, the lowest level on records starting in 1991.  These rate hikes add substantially to the cost of buying a home & additional rate hikes can be expected.

Pending Sales of U.S. Existing Homes Rose 3.5% in November

Mortgage Rates for 30-Year U.S. Loans Advance to Seven-Month High of 4.86%

# of contracts signed - 1 year

One-Year Chart for MoM % (USPHTMOM:IND)

Average rate on new mortgages - 1 year

One-Year Chart for 30 year Fixed US (NMCMFUS:IND)

Markets are lumbering along on mixed news, jobless claims are lower but mortgage rates are higher.  MLPs are the standout performer today which has to be related to window dressing.  Also, the yields on Treasuries are climbing again after the dramatic drop in the PM yesterday.  Bulls say they can live with higher rates.  Maybe, maybe not.

Dow Jones Industrials   ---   2 weeks

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1 comment:

Rey Abisan said...

This was kind of a bizarre year for the mortgage market. In the first half of the year, you had a decent number of home sales keeping mortgages for purchases stable, thanks to the home buyer credit. In the second half of the year, that changed as demand crumbled when the credit was withdrawn. At the same time, you had very low mortgage interest rates throughout much of the year cause a mini-refinancing boom. 2011 will look very different, as the housing demand continues to struggle and mortgage interest rates have begun rising.

home buyer