Economic Data for Friday July 31, 2009

The Q2 employment cost index rose 0.4%, higher than the expected 0.3% increase which is generally not bond friendly.

The Q2 Advance GDP fell 1.0%, not as weak as the expected 1.5% decline and also generally not bond friendly.

However, the PCE Core Inflation rose 1.3%, weaker than the expected 1.4% increase. The core rose 2.0%, weaker than the expected 2.4% increase. These figures help alleviate some inflation concerns and generally bode well for bonds. Inflation, real or perceived, is the enemy of fixed income instruments eroding the value. Bonds generally like it when inflation is in check.

HVCC and Rate vs. Price

This is a topic that just stays in the news (at least in the real estate an mortgage news/publications). As you may know by now, the government has instituted the Home Valuation Code of Conduct or HVCC. With that, Appraisal Management Companies (AMC's), are a third, impartial, party who will arbitrarily choose the appraiser that performs the appraisal on a conventional mortgage. Fortunately, we still don't need this to be done on FHA mortgages.

The government implimented this guideline in an effort to swat the relationships between mortgage brokers and lenders and their friends in the appraisal business because it was felt that they were in cahoots with each other. While that may have been the case a few years ago, the ability to even "stretch the truth" about the value of a home has been curbed by both the current market condition as well as many of the unruly people in the real estate and mortgage industries hitting the door now that you actually have to work to put a deal together.

While the pendulum may have been too far to one side, making it too easy to put a mortgage transaction together, that same pendulum has swung too far in the other direction and made it too hard to put one together, now. Just this week, I spoke to an appraiser who said he has invoices that are well over a month old and is waiting to get paid by various AMC's, so who's really benefitting from this new system?!!

Reps. Gary Miller, R-Calif., and Travis Childers, D-Miss., have introduced a bill in Congress that directs the GSE regulator, the Federal Housing Finance Agency, to suspend the HVCC for 18 months. Trade groups like the National Association of Realtors are fielding complaints from their members and trying to quantify the extent of the problem. The bill is HR 3044 and if you would like your voice heard on this, please visit http://www.hvccpetition.com/ and sign the electionic petition.

Rick Masnyk is Manager of 1st Metropolitan Mortgage's North Smithfield, RI branch and can be reached at 1-888-282-2835 or by visiting www.getanhonestmortgage.com.

Durable Good Orders

Durable goods orders fell 2.5%, weaker than the expected 0.6% decline....definitely a positive for the bond market.

In addition, the Fed continues to purchase mortgage bonds in an effort to keep rates relatively low. The housing sector is essential to the stability of the economy and the last thing the Fed wants is for the housing sector to deteriorate more. Low rates are essential to their success. However, there are selling pressures the Fed deals with as we have seen with spikes as of late. Fortunately again this morning the buying pressure outweighed the selling in what looks to be a repeat performance from yesterday. Let's hope the 5 year auction this afternoon is better than the 2 year yesterday. We also have the Fed Beige book at 2pm ET.

Consumer Confidence

Consumer Confidence came in at a weaker than expected 46.6 mark. Analysts were looking for a reading of 48.7. This is bond friendly and shows that consumers aren't quite as optomistic about the economy as the recent stock gains might indicate.

New Home Sales report from yesterday

Sorry that this is late, but it was due to technical difficulties.

New Home Sales were expected to increase by 1.7%. The result was an increase of 11%, although that is being attributed to the continuing fall in prices.

Housing Starts for July 17, 2009

Housing starts rose 3.6% in June, stronger than the expected 0.1% decline. This is generally not bond friendly.

Wells Fargo vs. Wells Fargo

Can a bank sue itself?!!! Apparently so.

http://www.foxbusiness.com/story/markets/al-lewis-wells-fargo-bank-sues/

Philadelphia Fed Survey

The Philadelphia Fed business conditions index came in down 7.5, versus the expected 4.8 decline. This was one of the first pieces of bond friendly data this week.

Weekly jobless claims fell to 522,000, not as many as the expected 565,000 mark and just another piece of data that doesn't help bonds.

Consumer Price Index for July 15, 2009

CPI up 0.7%, expected up 0.6%, Core up 0.2%, expected up 0.1%

Producer Price Index and Retail Sales Report

Producer prices rose 1.8%, higher than the expected 0.9% increase. The core, which excludes volatile food and energy, rose 0.5%, higher than the expected 0.1% increase. Retail sales rose 0.6%, higher than the expected 0.4% increase. NOT BOND FRIENDLY

Results of 10 Year Treasury Auction

2 down 1 to go 10-year auction went well, lots of foreign buying

30-year tomorrow

Results of yesterday's 3 Yr. Treasury Auction

Sorry for the late report. Yesterday's 3 Year Treasury Auction was "well received." Foreign demand was at 56%. "Supply and Demand" rules would indicate a positive response for mortgage rates. There has already been some rebound/improvement in the market. Investors will be keeping an eye on the results of Wednesday's 10-Year Treasury Auction.

Employment Report for July 2, 2009

In news released this morning, non-farm payrolls fell 467,000 in June and the unemployment rate stood at 9.5%. Economists’ estimates were for jobs to decline 365,000 and for the unemployment rate to stand at 9.6%. Also, factory orders rose 1.2% vs. estimates for an increase of 0.8%.

ISM Index

The Institute for Supply Management (ISM), a survey of purchasing managers, rose two points to stand at 44.8. That data was as expected with no effect on trade.

Employment Report for July 1st, 2009

In news released this morning, the ADP payroll estimate shows the US economy shed 473,000 jobs last month. This data was worse than the expected decline of 394,000 jobs. Despite the fact this data was bond friendly, traders choose to overlook it waiting instead for tomorrows jobs report.