After a 550 point decline in the DJIA in the last two days, this mornings opening was slightly better.  Global stock markets remained mixed.  The world is facing the possible end of central banks driving markets are now forced to adjust to the real underlying economic fundamentals. 

Now Markets and economists have to look at the economic outlook from the perspective of reduced stimulus. 

• Is employment increasing with new jobs that pay wages at levels that will improve 80% of wage earners?
• Will businesses continue to report solid earnings and profits as they have in recent quarters?
• When ObamaCare kicks in in 2014, what impact will it have on individuals and businesses?

Lots of questions with no significant answers at the moment. 

Presently markets are not thinking about any of it.  All market action in the last two weeks has been driven by reducing leverage and making decisions on the fly.

The Fed's track record on economic forecasting is no better than private forecasts, so while the monetary outlook for interest rates has become more bearish, the Fed's economic outlook will still have to proven to be correct.

We will have to give this a few months, but we still believe that the economy is not as fundamentally strong as what the Fed believes it to be.

-Michael Corboy

The end of ultra low interest rates?

In the past month, rates have been on the rise and are expected to continue to climb.

THE NUMBERS DON'T LIE.
When factoring the rising interest rates, there is no reason for anyone to think that a better value is coming..........it's time to get in the game!

View the press release:
http://goo.gl/ZCCFk

-Michael Corboy

After serious selling yesterday in the bond and stock markets, this morning the 10yr. note climbed to 2.43%, an increase of 25 bps since yesterday's opening.  The DJIA and all global stock markets have taken heavy hits.

For the past six weeks, the one consistency has been on what the Fed will do; Markets wanted clarity.  The result was not what the markets were expecting.

In his press conference, Bernanke spoke about what the Fed will do and when it when it will do it.  The Fed believes the economic outlook is improving and based on the Fed's forecasts of continued slow improvement, the Fed will begin tapering its easing by the end of this year and all easement will be ended by mid 2014.

Markets panicked, interest rates exploded and the US and world stock markets fell.

If the Fed is wrong, Bernanke made it clear that the Fed will continue with its purchasing of MBS's and Treasuries.  Economic data will have added importance now given the definitive comments from the Fed yesterday.  Bernanke said the Fed would not sell its MBS's securities it currently holds (a relief of concerns of more short term increases to mortgage rates).

May existing homes increased 4%.  The June Philly Fed business index improved drastically, but the better data did not generate a positive response.

China appears to be tightening credit by draining reserves to stop predatory lending, resulting in the repurchase rate seeing unprecedented increases.  Manufacturing is shrinking and the importance of China's economy is another reason US stocks are under pressure.

Ignore all of the debate and economic outlooks out of the equation, the focus is on what the markets are doing, and right now, markets are in turmoil and declining.

Forecasts were that the 10yr. note would find some relief at 2.40%.  This morning the note hit 2.47%.  Estimates as to how high the note will go before a rebound is realized are not currently reliable and we look for further volatility through the rest of the day and throughout the week.

The bond and mortgage markets, as well as the stock market are still reacting to the Fed's release yesterday, which has resulted in a lot of emotional tension today.

The overall impact will take longer to judge the Feds ability to control the way the economy will react to its retreat.  Many believe the market is not yet ready to absorb the resulting increase in rates. 

Bernanke has set the unemployment benchmark at 7%, however all hopes are that the Fed will maintain or increase its current stimulus until unemployment holds steady between 5 and 6%.  That mark is unlikely to be witnessed by the current Fed Chairman according to President Obama.

Read more about the Fed release at:

• http://www.nytimes.com/2013/06/20/business/economy/fed-more-optimistic-about-economy-maintains-bond-buying.html?_r=0
•  http://www.federalreserve.gov/newsevents/press/monetary/20130619a.htm

Now is more important than ever to remain in constant contact with your mortgage professional.

- Michael Corboy

Yesterday the bond and stock markets rallied as the FOMC meeting gets closer and investors confidence that the Fed will begin to taper its QEs is beginning to fade.

From now until next Wednesday afternoon, the markets main focus will be on the FOMC meeting, its policy statement and Bernanke's press conference following the meeting.

Recent data and the unusually swift increase in long term interest rates(including interest rates), may not be to the Feds liking.

Floating has many risks attached, but if you choose to do so remain in constant contact with your Mortgage Professional and keep alert for any changes.   So far the markets are doing well, but there is a lot of time left in the day.

- Michael Corboy

Today, Treasury will sell 32 Billion in 3 yr. notes with results possibly impacting trading.

The housing market, while significantly improved, has been rate driven.  The recent increase in rates has already slowed applications and any additional increase would slow things further, which is not what the Fed wants to see.

MBS selling supply is running below recent levels, which means at some point the buying demand should increase, potentionally leading to an improvement in rates.

Today we are seeing that there is no easy way out of the Feds QE3 policy. This morning the 10 yr. note was at 2.28% and US, European and Asian stock markets were all being hit negatively. 

The new concern is is that the Bank of Japan has left its monetary policy unchanged.  The yen is strengthening and speculation is that central banks will fail to keep the global recovery on track by not pumping in its expected stimulus.

- Michael Corboy

This week MBS markets will open near very key support levels after the May employment report came in inconclusive in the QE debate.  With unemployment increasing to 7.6%, the Fed has little reason to change its direction now.

The 10 yr. note continues to increase.  The volatility index rose to 84.8 on June 6th, the highest since June of 2012. 

The markets have become completely consumed over when the Fed will begin to taper its QEs.  Many see that any easement at this time, would be unproductive based on the weak employment data and slow economic growth and a waste of money and a disruption of normal market forces; which requires the markets to adjust to reality vs. the manipulated market effects caused by central bank stimulus.

- Michael Corboy

The May employment report was one of the most anticipated in years.  After all of the volatility recently, the data has become unpredictable and generally wide of target.  This time however, the data was about in line with estimates leading to adjustments, but no major market swings.

The data however, has not removed the QE uncertainty.  Many believe that the Fed is unlikely to reduce its asset purchases after the rate climbed from a four year low in May.  In the view of many forecasters, the Fed may want to see four months of job growth of 200K or more before beginning to taper off its purchases:  an important clue to the outlook for monetary policy.

With still very mixed opinions about what the Fed may do, it is important to focus on technicals, the real measurement of what investors and traders are actually doing rather than all the rhetoric and opinions.  Until those levels give way, we expect rates will increase about 10-15 bps on the 10 yr. and at least 10 more basis points on the 30 yr. mortgage rate.

- Michael Corboy