Money Market Recap & Forecast

Stocks rose sharply at opening last Monday following Europe’s lead.  Spain proposed a budget and its banks passed stress tests, relieving major concerns.  The eurozone’s manufacturing index rose to 46.1.  Although any number below 50 shows contraction, it’s at a six-month high.  Stocks climbed even higher when our own ISM index manufacturing rose to 51.5 in September.  That’s the first reading above 50 since May.The other economic report showed construction spending in August fell for the second straight month.  It came in at -0.6% versus a -0.4% in July.

In a speech to the Economics Club of Indiana on Monday, Fed Chairman Ben Bernanke pulled the rug out from under Wall Street, which had made big gains on news form Spain.  In defending QE3, Bernanke said, “The economy simply has not been growing fast enough recently to make significant progress in bringing down unemployment.”  He added that Congress must deal with the upcoming fiscal cliff.  Even though the Dow closed up almost 80 points, it was half of what it had gained earlier.

The number of investors on the sidelines waiting for something good to happen increased on Tuesday.  No economic news was released, but worries about Spain’s economic situation persisted.  In addition, many believe the banks’ stress tests were not as stellar as initially thought.  Stocks sold, but benefits to bonds were meager.  The 10-year yield held at 1.61%.

On Wednesday there was a bona fide economic report.  It said the September ISM index on the service sector rose almost one-and-a-half points to 55.1.  There was little reaction in the markets from that piece of news, but stocks rose when ADP, the payroll company, said 162,000jobs were added to private payrolls in September.

The release of the minutes of the Fed’s Sept. 12 meeting did not affect trading.  Stock closed with minimal gains, while the 10-year yield edged up to 1.62%.

Stocks jumped on Thursday, and the 10-year yield took a beating.  It didn’t occur because of a great first-time jobless claims report.  That was pretty bad.  Bank stocks rose on word that ECB President Draghi reaffirmed that Europe’s central bank would, indeed, go forward with its bond-buying program so Europe can work its way through its sovereign debt problem.

In addition, two large regional U.S. banks are being reviewed for an upgrade, which bodes well for the domestic banking sector.  Separately, first-time unemployment claims for the week ended Sept. 29 rose by 4,000 to 367,000.  Claims can’t seem to break below that 350,000 mark.

The yield on the 10-year note closed at 1.66%.

Released on Friday, the unemployment report for September blew investors away.  The rate dropped to 7.8%, its lowest level in almost three years.  A total of 114,000 jobs were added to nonfarm payrolls.  In addition, a household survey, which is far more volatile and less reliable than the survey of 141,000 businesses, showed 823,000 more people said they had jobs.  Economists pay attention to the business survey.

The report did no favors to Treasuries.  The yield on the 10-year jumped to 1.73% from 1.66%.  However, stocks lost some of their enthusiasm.  The Dow closed positive but the other two major indices ended in negative territory.

Historically low mortgage rates increased demand for applications to both buy and refinance, according to the Mortgage Bankers Association.  During the week ended Sept. 28 the refinance index rose 3%, while purchases were up 1%.  Applications to refinance accounted for 81.2% of total applications.

This week is short on news that could affect the markets.  The first report doesn’t come out until Wednesday, and it’s not likely to stir things up.  Wholesale inventories say nothing about consumer spending, so this August report will not be a factor.

In the afternoon, the Fed releases its beige book, which provides an economic picture of each of the nation’s 12 districts.  A negative report from most districts could send the 10-year yield down a point or so, while positive news could have the opposite effect.  But generally there is little reaction to the report.

Thursday, the big news is first-time unemployment claims.  The previous week they rose to 367,000.  Should claims rise again, Treasury yields would probably dip.  If claims drop sharply, Treasury investors would likely see their yields rise.

Thursday’s other reports, the U.S. trade deficit for August and the import and export price indices for September, generally do not impact the markets.

Friday begins with the September producer price index which tracks wholesale prices at the wholesale level.  In August the index showed a 1.7% increase, but it was largely caused by rising costs of food and gasoline.  Since then gas prices have fallen sharply, so a 1.2% increase is predicted.  The core rate, which eliminates gas and food prices, rose by 0.2% and will likely do so again.  The core rate is the tell-tale inflation indicator, and it shows that inflation is in check.

The Thomson-Reuters/University of Michigan preliminary consumer sentiment survey for October is the week’s final report.  It has shown that confidence is at a relatively high level of late.  The final for September was 78.3.  A sizable move up would likely send Treasury yields up, but a decline would have the opposite effect.  It’s the size of the move that actually impacts Treasury yields.


ALBUQUERQUE, NM 7-30-12 USA Cares has launched a new education course designed to provide loan officers, realtors and housing professionals with a clear understanding of how to work with military clients.  Frost Mortgage is pleased to have a graduate, Nita Diem of this new program and be among the first housing professionals to offer this level of expert customer service to military men and women. Through the USA Cares Certified Military Housing Specialist Course – accessed online at – the CMHS Course provides the tools and knowledge needed to effectively work with military borrowers, especially in a fast-paced and competitive market. It also includes timely advice for housing professionals regarding foreclosure prevention, with tips they can give their clients to help them avoid mortgage delinquencies in the future.

“This course aims to put greater numbers of military families into affordable homes through knowledgeable professionals who understand the unique circumstances brought about by military service” remarked USA Cares Executive Director Bill Nelson.

The course’s author, Beverly Ray Frase, has a strong background as loan officer, real estate broker and career army wife.  “I’ve been on all sides of the home buying process,” saysBeverly.  “I know where the speed bumps are, especially for our military men and women.  Working with a certified housing professional should move them down the path to an accurate and timely closing.” 

The course helps all housing professionals make sense of the military language, rank and pay system. It even outlines what happens when a service member is injured, and explains how their pay will continue during hospitalization and treatment. Earning the Certificate of Completion for the CMHS Course indicates a significant knowledge base that active duty service

members and veterans can rely on for prompt and accurate service of their housing needs. Certified Housing Professionals will adhere to specific Standards of Practice, representing a commitment to provide quality service to military borrowers.

USA Cares is no stranger to supporting the homeownership goals of military families. “We’ve paid out over one million dollars to save military family homes in the past three years,” said Jennifer Robinson, USA Cares Director of Assistance. “This new effort will help reduce the need for such assistance by supporting military borrowers and their lenders as they work together to make affordable and sustainable housing decisions.”

Money Market Recap and Forecast

Last Monday looked like a great day for Treasuries.  Growing concerns about the two-day summit in Europe sent the markets reeling as hope faded for a positive outcome.  In addition, Spain requested aid for its banking sector.

Investors flocked to the safety of U.S. Treasuries.  The 10-year note yield, which moves inversely to price, fell 6 basis points in the first two hours of trading.  The three major stock indices were down more than 1% each.

A better-than-expected report on May new home sales had no noticeable impact.  Sales jumped to an annual rate of 369,000 units, handily beating an estimate of 350,000.  Sales also dwarfed the annual rate of 343,000 units in May.  When the markets closed, stocks were off their worst levels of the session but remained in negative territory.  After an initial drop, the 10-year yield held at 1.61%.

Tuesday saw the S&P/Case Shiller home price index showing home prices rose 1.3% in the nation’s 20 largest cities — the first increase in seven months.  Consumer confidence in June dipped for the fourth straight month, falling to 62 from 64.4.

Stocks crawled out of negative territory, but much angst over the results of the upcoming summit remained.  Stocks closed with modest gains, while the 10-year note yield crept up to1.63%.

Wednesday completed the trifecta of good news on housing when pending home sales rose 5.9% in May.  Not only was it a huge turnaround from April’s -5.5% decline, but it beat analysts’ expectations.  Housing activity, of course, generates jobs.  

Orders for durable goods in May were strong after a terrible report in April.  Demand for durables rose 1.1% versus the previous -0.2%, while orders (excluding transportation) were up 0.4%, compared to April’s 0.6% decline.

Although Wall Street continued to stew about the summit in Europe, it couldn’t ignore the positives of the week.  Treasuries held amazingly steady throughout, with the yield dipping to 1.62% from 1.63% at close.

Multiple factors were in play on Thursday as first-time unemployment claims fell by 6,000 to 386,000 during the week ended June 23.  Claims have held at around 380,000 for the past four months, indicating no real improvement in the job market.  The final revision of 1stquarter GDP came in at 1.9%, which was exactly what the markets expected.

Buying in Treasuries surged as the European summit convened, indicating the markets lacked conviction of a positive outcome.  Stocks opened down for the same reason.  Traders waited nervously for the Supreme Court decision on President Obama’s Affordable Health Care Plan.  When it came down, the vote was 5 to 4 in favor, stating that the plan was indeed within constitutional guidelines.

Stocks continued to dive as investors feared that healthcare costs could slow economic growth.  They also worry that the mandate to purchase healthcare insurance could reduce consumer spending for other goods.  Health insurance stocks tumbled, but those of many hospital groups rose.  The Dow recaptured more than 150 points but closed 25 points in the red.  Safe haven buying in 10-year notes drove the yield down to 1.58%.

No one thought it would happen, but on Friday European leaders announced agreement on a plan to recapitalize European banks without adding to the government debt of the country in question.  The program could be implemented as soon as July 9.  Spain will likely be first in line.

That news sent the Dow Jones up more than 200 points at opening.  The 10-year note yield jumped seven basis points.  Domestic economic news was mixed, but nothing would have changed the direction of the markets.

Personal income in May rose by a better-than-expected 0.2%, while personal spending was flat: not a good sign for economic growth.  The PCE pointed to low inflation.

The final Thomson Reuters/University of Michigan consumer sentiment report in June fell from 74.1 to 73.2 — its lowest reading since December.  A weak job market and uncertainty regarding the global economy weighed on sentiment.  The Chicago PMI June index of manufacturing conditions in the upper Midwest rose to 52.9 from 52.7 in May, climbing from its lowest level in three years.

When the markets closed, the stock indices added between 2.2% (Dow) and 3.0% (NASDAQ), which sent 10-year yields up.  The 10-yield rose to 1.66%.  FYI: one year ago the 10-year yield was at 3.21% — quite a year.

The Mortgage Bankers Association saw mortgage applications slide during the week ended June 22.  Purchase apps fell 1%, while refis dropped 8.0% due partly to the big rush on FHA streamline refis the previous week.

The first week of July is highlighted by the ISM index for June, first-time jobless claims for the week ended June 30 and the all-important June employment report.

Of course, Europe may not be done with us yet.

Monday’s ISM index on nationwide manufacturing conditions should fall to 52.8 from 53.5.  While not a huge decline, it is another indication that the manufacturing sector is not healthy.  Construction spending in May should show a 0.2% increase — down a tad from the previous 0.3% gain, but not a market mover.

Tuesday’s lone report is factory orders for May, and some improvement is expected.  Analysts predict a -0.3% dip, which is better than April’s -0.6% decline.  This report won’t impact trading.

With the markets closed Wednesday, the next release will be Thursday’s first-time jobless claims for the week ended June 30.  There is no indication that they will move far from their 380,000 niche.

ADP, the payroll processing company, will release its take on private sector jobs added in June.  Right or wrong, the markets usually move on this projection.  If ADP says 150,000 were added and it turns out to be only 75,000, Treasuries will benefit.  The opposite is also true.

Thursday’s final report is the ISM June index on the service sector.  Although it doesn’t carry the weight of the manufacturing sector, it employs a lot more people and gets more attention every month.  The index is predicted to fall to 53.0 from 53.7 the previous month, which probably wouldn’t raise red flags.

The employment report for June is out Friday and some are predicting the addition of 100,000 jobs.  Although far below the 250,000 needed per month to get the economy going again, it would sure beat the measly 69,000 added in May.  To meet with market approval, jobs added will have to meet or beat the forecasts.  If they don’t, 10-year yields will rise.

Money Market Recap and Forecast

The news last Monday wasn’t terrible.  Although Greece’s center-right New Democracy party failed to win a majority of seats, party leader Antonis Samaras will need 32 additional votes to pass austerity measures.  The far-left party, which received the second-most votes, will not support Samaras.

Spain remains under pressure because the interest it must pay on its bonds crept over 7%, which could signal bailout.  Italy may join the line of economically stressed eurozone nations, as its bond yields climb daily.

The National Home Builders Association’s index of builder confidence rose to 29 in June — its highest level in five years.

Stocks jumped at opening and then cooled.  U.S. Treasuries barely moved.  The 10-year note yield closed unchanged at 1.58%.

Stock prices surged Tuesday when May data showed building permits rocketed to an annual rate of 780,000 — up from 723,000 in April.  May housing starts fell 4.8%.  Starts in April were revised upward to an annual rate of 744,000 units, the highest total since October 2008 and 28.5% higher than one year ago.  The 10-year yield rose to 1.62%.

The hope of good news from the Fed, which drove stocks up on Tuesday, disappeared Wednesday morning as “the moment of truth” neared.

The Fed’s post-meeting announcement said “Operation Twist will continue through the end of 2012.  Fed Chairman Ben Bernanke added that the Fed has other tools that could be implemented to spur the economy, but stopped there.  He also said the Committee was disappointed with slow employment growth, a weak housing market and low GDP.

The closing bell saw the 10-year yield rise to1.64%.

Thursday’s reports were mediocre at best, and when paired with the Fed’s lack of an aggressive move the previous day, stocks plunged.  The Dow closed down 251 points.

First-time unemployment claims for the week ended June 16 fell by 2,000 to 387,000, while existing home sales in May slid to an annual rate of 4.55 million units down 70,000 units from April.  In addition, the Philly Fed index of May manufacturing conditions slid to -16.6 from -5.8 in April.  The final report, leading economic indicators in May, showed a 0.3% increase.  The yield on the 10-year closed at 1.62%.

Outside the U.S., China saw a big drop in manufacturing, while Europe’s PMI held at a three-year low. The Ifo Business Climate Index for industry and trade in Germany fell significantly in May, and assessments of the current business situation deteriorated.

Weak economic news from Europe and downgrades of 15 major banks by Moody’s sent the overseas markets down overnight and into Friday morning.  The Dow Jones recovered less than one-third of Thursday’s significant losses.  No economic reports were released Friday.  The 10-year yield jumped to 1.67% by closing.

During the week ended June 15, the Mortgage Bankers Association reported that applications to refinance rose 1%, while purchase apps slid 9%.  The FHA refinance volume hit an all-time high due to “new, lower FHA premiums on streamlined refinance loans ¦ and borrowers seized the opportunity to lower their mortgage rates without increasing their FHA premiums.”

This week an important economic release is due almost every day.  On Monday new home sales in May are projected to rise to an annual rate of 350,000 units from April’s 343,000.  Although not a big market mover, it is positive news.

Tuesday’s consumer confidence index generally impacts the markets, but usually when larger numbers are in play.  Analysts expect little change in June.  The index should fall to 64.5 from 64.9.  A bigger drop could increase buying in Treasuries.  The second report, the S&P/Case-Shiller index of April house prices in the nation’s 20 largest cities, is of lesser importance.  Prices fell 2.6% the previous month.  There are no estimates for May.

Wednesday features durable goods orders and pending home sales, both for May.  Orders for durable goods, expensive items expected to last three or more years, should come in flat after April’s revised 0.2% increase.  Durable goods, excluding transportation, also had their May numbers upwardly revised.  No ex-transportation estimates are available.  The weak numbers indicate demand for big-ticket items is down.  This report sometimes impacts trading, but sometimes it doesn’t.

Pending home sales for May are also on the calendar.  Compiled by the NAR, this report showed sales down 5.58% in May.  No June estimates are available.

Thursday first-time unemployment claims during the week ended June 23 could move the markets.  Claims have been steady-to-rising, so any significant decline would likely boost stocks and send the 10-year yield up.  Should claims continue to rise, Wall Street would worry and the yield could fall.  How far, of course, depends on the number of claims.

The final revision on 1stquarter GDP is predicted to come in at 2.0% — up from 1.9%.  While any increase is welcome, that one would not drive the markets up.  A reading of 2.1% or 2.2% might push Treasury yields up.

The week closes with personal income/spending for May.  While income is predicted to rise 0.2%, the same as in April, spending should rise 0.1% — a drop from the previous 0.3%.  Since consumer spending drives the economy, a decline would send the 10-year yield lower.  The PCE, a major indication of inflation, should rise 0.2%, from the previous 0.1%.  While bond traders hate inflation, this would not be high enough to set off alarms.

The next report, the Chicago PMI index on June manufacturing conditions in the upper Midwest, should show an increase to 54.0, up from 52.7 in May.  These local manufacturing indices, e.g., NY Empire, Philly Fed and PMI, have declined lately, so any upward move would be welcome, but not a big market mover.

The final report, the Thomson-Reuters/University of Michigan consumer sentiment survey for June, can really impact the markets.  Thus far no estimates have been released.  The preliminary survey came in at 74.1, so a point or two either way could make a difference.  Considering the negative news on jobs, the economy and housing, as well as turmoil in Europe, survey numbers could decline.  That might take the 10-year yield down with it.

Money Market Recap and Forecast

After the previous week’s downhill slide, trading was light last Monday.  Questions regarding Europe’s debt crisis, especially as it concerns Spain and Greece, weighed on stocks.  The only report saw factory orders fall 0.6% in April.  This was an improvement over March’s 2.1% decline.

The 10-year yield, which moves inversely to price, closed at 1.53% — six basis points higher than Friday’s all-time low of 1.47%.  The fact that Monday’s yield remained low pointed to real fears about the economy.  Stock indices were little changed.

On Tuesday stocks got a lift from a better-than-expected reading on the May ISM index on the service sector.  It crept up to 53.7 from 53.5.

There was mixed news from Spain, whose banking system is teetering on the brink of collapse.  The country’s treasury minister said Spain is unable to get money to refinance its ‚¬800 million debt.  In response, the G7 called an emergency meeting, offering hope that a resolution might be found.  U.S. financials rose on the news.

Stocks made small gains and closed in positive territory, while U.S. Treasuries sold.  By mid-morning, the 10-year yield rose to 1.56%, where it closed.

Wednesday, stocks went wild, rising by 200 points right off the bat.  Overnight ECB officials said they are working on a plan for bank rescues and bailouts.  In addition, the European Union is discussing the creation of a bank union to deal with financial crises instead of leaving each national government to cope on its own.  (This would likely not be finalized for years.)

Revised numbers on 1stquarter productivity had little influence on the markets.  Productivity was lowered to -0.9% from the previous -0.5% reading.  Costs, however, were revised downward to 1.3% from 2.0%.

The Atlanta Fed president noted before the release of the Fed Beige Book that, if negative information continues to come from Europe, Fed action will need to be considered.  This was interpreted as a call to continue Operation Twist, if necessary.  

The Fed’s Beige Book, an economic overview of the nation’s 12 districts, was more upbeat than expected, with the takeaway being “the economy is growing at a moderate pace.”  When the markets closed, each of the major equity indices had gained 2.3% or better on the session.

As stocks rose Treasuries sold, and the yield on the 10-year note jumped nine basis points to a still-low 1.65%.

News that China had cut its lending rate by 0.25% in order to bolster its economy sent stock prices climbing with the opening bell.  They stayed up when first-time jobless claims fell by 12,000 to 377,000 during the week ended June 2.  The more-reliable four-week average rose by 1,750 to 337,750 — the same as it was one month ago.

Fed Chairman Ben Bernanke testified before the Joint Economic Committee and did not reference QE3 or any other stimuli.  He put the onus on Congress to establish a consistent fiscal policy.  In the wake of the chairman’s testimony, stocks gave up most of their previous gains.  Only the Dow closed positive, with a small increase.  Treasuries benefitted, as buyers sent rising yields back down to 1.65%.

The Bernanke testimony bummed out U.S. investors on Thursday and the contagion went global.  Friday morning stocks opened down and U.S. Treasuries were in demand, with the 10-year yield falling to 1.58%.  Adding to concerns about Spain was a Fitch downgrade of the country’s sovereign debt to a hair above junk.

The two reports, the U.S. trade deficit and wholesale inventories for April, had little effect on trading.  But in the afternoon word was that Spain will soon seek financial help.  In addition, President Obama asked Congress to revisit previous un-passed legislative proposals that would lift the economy.  This and positive news from Europe boosted stocks.  The10-year yield closed at 1.64%.

Applications to refinance rose 2.0% during the week ended June 1, according to the Mortgage Bankers Association.  Purchase apps, however, fell 13% from the previous week.

Once we get past Monday and Tuesday, this week features a number of important economic indicators that can influence trading.  News from Europe could impact the markets on any given day.

No reports are scheduled for Monday, and Tuesday’s only release is import/export price indices for May.  Analysts believe import prices will fall 1.4%, which is much steeper than the 0.5% decline in April.  Export price predictions are not available.

There are three indicators due Wednesday.  Retail sales usually carry the most weight, but forecasts show little movement.  Sales in May are expected to fall 0.1% versus a 0.1% gain in April.  Excluding autos, the outlook is exactly the same: -0.1% for May versus a 0.1% increase the previous month. 

The producer price index, which tracks inflation at the wholesale level, should fall 0.9% as opposed to a 0.2% decline in April.  The core rate, which excludes food and energy prices, is expected to rise 0.2%, as it did previous month.  No inflation whispers here.

Business inventories for April will also be released, but this report is of little value to the markets, and no forecast is available.

First-time jobless claims for the week ended June 9 will be out Thursday morning.  The previous week’s claims fell by 12,000, but claims see-saw.  Unless there is no change, higher claims should send the yield down, while a drop in claims would have the opposite effect.

The consumer price index for May is also on tap but is not expected to show any hint of inflation.  The CPI could drop 0.2% after coming in flat the three previous months.  The core rate should rise 0.2%, the same as in April.

Friday could be a good day for Treasuries.  There are three influential reports on tap and none are expected to be positive.  First up is the NY Empire State June index on manufacturing conditions.  It’s expected to drop to 15.0 from the previous 17.1.  May’s Industrial production data could impact markets.  Production is expected to drop 0.1%, which would be down from April’s 1.1% increase. 

The final report, the Thomson-Reuters/University of Michigan preliminary consumer sentiment survey for June, will probably have the biggest influence on the markets.  It should come in at 78.6 — down from the May final of 79.3.  Although not a big decline, any drop in consumers’ outlooks is almost always a negative for stocks.  This could bode well for Treasury yields.

Now is NOT the time for our Government to reduce its’ support of residential mortgage lending.

I recently attended the annual Mortgage Bankers Association lobbying day in D.C. with 5 of my industry colleagues from New Mexico. It was a very insightful experience.

It is apparent to me that there is a prevailing feeling in both the House and Senate, along with the Executive Branch, that our government should reduce its’ exposure in residential mortgage lending. Exposure is defined as its’ limited guarantees on FHA, VA, USDA, FNMAE and FHLMC loan programs. I kept hearing the supposition that private capital chould be encouraged to replace the current government participation that is so necessary to facilitate the securitization and capital acquisition. Government guarantees that keep mortgage interest rates low for the consumer.


1) History shows that FHA was begun in 1933 in the depths of the Great Depression. FDR realized that what stimulated the economy was jobs. The Government began the WPA program of building roads, bridges, dams, federal courthouses, post offices and other building projects to create jobs and leave capital improvements for future generations. FDR also realized that it was the housing industry that would have the greatest positive ripple effect on local and regional economies, which together would stimulate a national recovery. At the time one needed to make a 25, 50, or even 75% down payment in order to finance a home. The FHA program of 3% down was revolutionary. This program, along with the VA program of 100% financing, have, over the history of their existence, enjoyed exceptional financial success and have contributed greatly to the economy for over 70 years.
Today, we are nowhere near the point of economic crises that we were in 1933. If our leaders were courageous enough to begin these revolutionary and historic mortgage programs then, now is certainly not the time to curtail them.


2) It was the private, Wall Street acquired, capital infusion that got the mortgage industry into this mess. Wall Street developed and securitized mortgage instruments with appealing, exotic and historically toxic terms that were primarily designed to create Wall Street investor profits that significantly exceeded those attainable via the industry standard mortgage products listed above. Acquiring these newly designed hybrid loan programs was Fast & Easy for the consumer, and seemingly very profitable for Wall Street investors. However, their design paid little or no regard for the potential economic hardship to the consumer, should property values stabilize to the point that refinancing was no longer an option to forestall adjusting the payment to what were draconian “fully indexed accrual rates”. Payment adjustments that could raise the consumers’ monthly payment 50% or more.
I am a 40+ year veteran of mortgage lending and have lived through the corrupting of an outstanding industry because, in great degree, the profiteering by the boys who raise the Private Capital that D.C. insiders are suggesting is a plausible replacement for government involvement. I shudder to ponder a return to that destructive time.

Almost every American is now living in a home or apartment that was directly or indirectly facilitated by one or more of the existing government sponsored residential mortgage lending initiatives.

If there is a more relevant use of a governments authority, than contributing to sheltering it’s citizens, please point it out to me.

Money Market Recap and Forecast

Last Monday began on a positive note, with both stocks and bonds posting gains.  The ISM index on March manufacturing conditions rose to a better-than-expected 53.4 from 52.4.  Even though manufacturing has struggled mightily, this is the 32ndstraight month of ISM increases.  Another plus shows prices rose less than expected, which pleased inflation watchers.  Manufacturers also reported positive outlooks on hiring, production plans and order filling…

Construction spending dug a deeper hole in February, falling 1.1% — worse than the 0.8% decline in January.  It was also below expectations of a 0.5% gain.

After a slow start, the Dow Jones zoomed out of negative territory, posting good gains.  The 10-year note yield got a boost from from the 17 eurozone countries that reported that manufacturing activity fell in March.  The 10-year yield closed at 2.19%, down from 2.22% on Friday.

Tuesday was a bad day for everyone.  Stocks fell shortly after opening when factory orders in February rose only 1.3% instead of the predicted 1.4%.  They fell 1.1% in January.  The 10-year Treasury note was subjected to selling, sending the yield, which moves inversely to price, up.

At 2:00 p.m. EDT, the minutes of the FOMC meeting on March 13 were released, and no one was happy.  The minutes basically stated that there will be no additional stimulus unless the economy slows or inflation rises above the Fed’s watershed of 2.0%.  In addition, most Committee members agreed that the Fed should hold “an accommodative stance” and keep rates low through 2014.

Have you heard this before?  The opinions of the FOMC members were basically unchanged, as they have been during the past few months.  It is difficult to believe that the meeting’s minutes were news.  Yet, stock prices tumbled, and the 10-year note yield jumped nine basis points, closing at 2.28%.

Wednesday morning stocks were still reeling from the FOMC minutes, and there was no news to prop them up.  ADP, the payroll company, said 209,000 jobs were added to private sector payrolls in March.  That was somewhat lower than the 215,000 additions economists expect.  The ISM index on the service sector also disappointed, dropping to 56 from 57.3.  A reading of 56.4 was predicted.

Investors were also forced to revisit Europe’s sovereign debt problems due to weak response to a bond sale in Spain.  U.S. Treasuries appeared to be the investment of choice for Europeans and Asians as well as for domestic investors.  Two of the three major stock indices lost 1% each, while the 10-year note yield closed at 2.24%.

Yogi Berra summed it up: “It’s déjà vu all over again.”  On Thursday morning stocks were down huge in pre-market trading due to worries about the economic situation in Europe, and specifically about Spain’s economic stability.  This has some economists wondering if it will become the next Greece.  Investors also paused to consider what the economy would look like if the Fed pulled the plug on economic stimulus.

Fortunately, Wall Street responded to a positive report on first-time jobless claims for the week ended March 31.  A total of 357,000 filed for benefits — 6,000 less than in the previous week.  The more accurate four-week average, which smoothes weekly volatility, fell by 4,250 to 361,750.  Continued claims, those filing for a second week of benefits, fell to 3.3 million.  And outsource firm Challenger, Gray & Christmas announced that planned job cuts in March fell 8.8%.

When the dust settled, the bond market had a good day.  The 10-year yield closed at 2.18%, down six basis points from Wednesday.

The March employment report, released Friday morning, came in well below expectations.  Only 150,000 jobs were added to nonfarm payrolls when 215,000 were expected.  This was the smallest increase in the past five months, and it had investors running for the safe haven of Treasuries.  Buying was strong, even though volume was light due to Good Friday.  The unemployment rate dipped to 8.2%, but the decline was attributed to job seekers dropping out of the labor market.  The 10-year note yield dropped 13 basis points to close at 2.05%.

Mortgage applications for the week ended March 30 showed good growth, versus the previous week, according to the Mortgage Bankers Association.  Purchase apps were up 7.2%, while refis rose 4.0%.

Today should be interesting, as this will be the first chance for Wall Street to react to Friday’s employment report.  The NYSE was closed on Good Friday.  Stocks will likely post losses, but there are economists that believe Friday’s report will force the Fed to provide more stimulus.  Treasuries made their statement Friday, and unless there is a big event they are likely to stay on the sidelines.  

Tuesday offers results on wholesale inventories for February — generally a yawner for the markets.

Wednesday could see some action, as the Fed will release the Beige Book, an economic overview of the 12 federal districts in the U.S.  If the report shows economic slowing in most districts, stocks will fall and bonds will likely rally, lowering the yield.  Or the reverse could be true.  Mixed data would probably result in a status quo.  Earlier, import/export price indices for March will be released, but more often than not, they have little effect on the markets.

First-time unemployment claims for the week ended April 7 are due early Thursday as is the producer price index.  Last week claims dropped to 359,000 — their lowest level in four years, but they remained higher than the 350,000 expected.  Stocks sold.  Claims should continue dropping, but whether they meet, beat or come in below forecasts will determine how the markets react.  Another drop in claims should slow buying in Treasuries, but it’s not a sure thing.

The producer price index for March is also due.  This check on wholesale inflation has seen prices edge up, but the core rate, which the Fed watches, eliminates volatile food and energy prices.  In a perfect world, increases should hold at levels of 0.1% or 0.2%.

The trade balance for February will also be released.  Since October it has skyrocketed from $43.5 billion to an unrevised $52.6 billion in February.  Although the markets probably would like to see the deficit shrink, they have taken this news well over the past few months.

Friday offers two market movers that can affect trading; the consumer price index and the Thomson-Reuters/University of Michigan preliminary consumer sentiment survey for April.

Like the producer price index, the consumer price index has edged up, but the more important core index, which monitors inflation, rose only 0.1% in February.  As long as the core travels between 0% and 0.2%, the bond market can live with that.  Should it go higher and stay there, traders would fear that inflation could rob bonds of their value over time, and selling would likely result.

Money Market Recap and Forecast

Fed Chairman Ben Bernanke woke up the markets Monday morning during a speech to fellow economists.  He noted that we “can’t be sure the recent pace of improvement (in the jobs market) can be sustained.”  He added, however, that the Fed’s “accommodative monetary policies should help unemployment.”  Wall Street interpreted these comments to mean that rates will remain low for a long time.

This was not new news.  Bernanke first mentioned rates would remain low well into 2014 more than two months ago.  But investors, hungry for reasons to buy, took the bait, pushing the Dow Jones to its highest close since January 3.  Of course, U.S. Treasuries were punished.  The 10-year note yield, which moves in the opposite direction of price, jumped early, hitting 2.29%.  It later trimmed its losses, closing at 2.25% — just one basis point higher than Friday’s close.  The only release Monday saw pending home sales in February fall 0.5% after climbing 2.0% the previous month.

Two disappointing economic reports released Tuesday morning had investors heading back to the safety of Treasuries.  The S&P Case-Shiller report on home prices in the 20 largest U.S. cities found prices at a 10-year low in January.  They were down 3.8%, following a 4.1% decline in December.

Consumer confidence in March dropped to70.2 from 71.6 in February.  These lower-than-expected results raised doubts about the speed of economic recovery.  The three major stock indices ended the session in the red, while the yield on the benchmark 10-year note closed at 2.19%, its lowest level in two weeks.

Durable goods orders for February, released Wednesday morning, were up from January’s poor showing, but they missed analysts’ expectations.  They rose 2.2% on orders for airplanes and defense-related items.  Excluding transportation, orders were up 1.6%.  Wall Street immediately began to worry about a slowing economy both here and abroad.  Trading was light as investors waited for 1stquarter results from major corporations, which should start coming in this week.

The three major stock indices each lost in the neighborhood of 0.50%.  The yield on the 10-year note edged up to 2.20%.

On Thursday stocks opened down on the first-time claims report for the week ended March 24.  Claims dropped by 5,000 from the previous week, coming in at 359,000 — a four-year low.  But that was less than the 350,000 analysts predicted.  C’mon, man!

The 4thquarter GDP final revision rose to 3.0%, as expected.  But quarter-to-quarter before-tax profits fell 4% — the biggest drop since 4th Q 2010.  When adding these concerns to the durable goods report, consumer confidence, a drop in home prices, and China’s questionable economic condition, it’s not surprising that stocks were down, although the Dow did move into positive territory after Treasuries closed.  Stocks also fell in Europe’s largest stock exchanges and in Shanghai, Hong Kong and Japan.

Bond traders took advantage of the situation and bought Treasuries.  The yield on the 10-year note fell to 2.16%.  A month ago it hit 1.98%.

Friday offered mostly upbeat economic news.  Personal income in February rose 0.2%, the same as in January, but personal spending jumped to 0.8% from the previous 0.4%, upping the chances that consumers will increase their spending.  The PCE, personal consumption expenditures, a major gauge of inflation, fell to 0.1%, which was a plus for the bond market.

The Chicago PMI index on manufacturing conditions in March fell to 62.2 from 64.0 the previous month.  One of the main drags on the index was a nearly 6% decline in employment from the previous month in the upper Midwest region included in the index.  The last report for March was the final Thomson Reuters/University of Michigan consumer sentiment survey.  It rose to 76.2, its highest level since February 2011.

U.S. Treasuries suffered their second straight month of losses in March, after flying high since August.  The debt crisis in Europe and a less-than-optimistic economic outlook for the U.S. had investors buying safe-haven Treasuries by the fistful, as mortgage rates dropped to record lows.  But the need for Treasuries cooled as the economies of Europe and the U.S. improved, a booming stock market and higher-paying options, such as corporate bonds, became available.

The 10-year note, which had held steady for most of Friday’s session, saw selling in the last hour, pushing the yield up to 2.22% at close.

The Mortgage Bankers Association reported that applications to refinance dropped for the sixth straight week, falling 4.6%.  It also noted that there was a 12% drop in the refinancing of government-backed mortgages.  Conventional refis dipped 3.4%.  Purchase apps, however, rose 3% during the week ended March 23.

This week focuses on the employment situation.  The ISM index on nationwide manufacturing conditions in March could edge up a point or so from the 52.4 in February.  Big moves in the ISM either way can affect the markets because manufacturing, like employment, has a long way to go before it hits it pre-recession stride.  But a major gain or loss is not expected.

Construction spending for February is not likely to climb, as new homes sales have been down.  Construction spending fell 0.1% in January.

Tuesday features the minutes from the March 13 meeting of the FOMC.  It’s difficult to believe that anything new will come out of the minutes, since there has been a lot of employment and rate talk released since then.  The markets, however, are always on the lookout for even a smidgeon of news, although it’s unlikely they will find one.

February factory orders will also be released but should have little impact.  January orders dropped 1.0%, but it would take a huge move to spur buying or selling in Treasuries.

ADP, the payroll company, issues its data regarding nonfarm payroll additions in March on Wednesday.  If high numbers are released, that could affect the markets, as would low numbers.  The correlation between ADP numbers and the actual report is seldom meaningful.  The other economic indicator is the March ISM index on the service sector.  Even though this sector employs far more than manufacturing, the index is fairly stable and seldom moves the market.

First-time unemployment claims for the week ended March31 are due Thursday.  Although they have been moving downward, they have a long way to go before economists will admit that job market recovery is here to stay.  An improvement over last week could hurt Treasuries, but it is more important to meet analysts’ expectations, which are not yet available.

The March employment report is due Friday, but it comes with a bit of a twist.  The NYSE exchange will be closed in observance of Good Friday, leaving only the bond markets to react.  On top of that, the report is expected to contain positive data.

Analysts believe that somewhere around 235,000 jobs will have been added to nonfarm payrolls.  That’s more than the unrevised 227,000 added in February and a lot closer to the 250,000 new jobs per month that economists want to see.  In addition, the unemployment rate could edge down to 8.2%.  This could ignite fierce selling in bonds.  Stocks could celebrate the following Monday, or not.

Money Market Recap and Forecast

What a week!  In reviewing the reports that were due last week, it looked like trouble.  But who could have guessed what would happen?  We may have seen the last of 10-year note yields below 2.00% for a while.  Maybe not.

Last Monday was a no-news, low-volume day as investors waited for the Fed meeting on Tuesday.  Investors were eagerly awaiting the results of recent bank stress tests and the Fed’s assessment of the economy during the upcoming months.  The 10-year note yield, which moves inversely to price, closed at 2.03%.

Tuesday morning a positive report on February retail sales increased selling in Treasuries.  Sales rose 1.1% — a five-month high.  Excluding autos, sales rose 0.9%, and excluding autos and gas, sales were up 0.6%.  Many general merchandise retailers also reported solid gains.  Separately, business inventories rose 0.7% in January.  This news led to strong selling in Treasuries, which only heightened after the meeting of the Fed.

In the afternoon, the Fed concluded its meeting without stirring the pot — or so it seemed.  Chairman Bernanke noted that, while there is more positive news on jobs, unemployment remains elevated, the GDP is still weak and the housing market is operating below par.  For these reasons, the Fed still wants to hold the fed funds rate at the current rock-bottom level well into 2014 to encourage borrowing and lending.

Regarding inflation, Bernanke said he and the committee want to keep it at 2.00% or less, excluding food and energy prices.  He noted that, while the worldwide economic situation has improved, “significant downside risks remain.”  There was, however, no hint of extending its bond purchase programs or introducing new ones.  After these hopes were trashed, the yield on the 10-year note closed at 2.10% — its highest level since Dec. 1, 2011.

When the markets opened Wednesday — whoa!  The yield on the 10-year was climbing like a fireman up a ladder.  With more positive than negative economic reports released lately, a more upbeat economic outlook from the Fed and big gains on Wall Street the previous day, investors sold bonds en masse.  The yield on the 10-year rose 15 basis points to close at 2.28% — its highest level since October.  Stocks posted good gains early, but they lost their luster as the day wore on.

The only economic report showed the export price index rose 0.4% in February, but import prices (excluding oil) fell 0.1%.  This report had no influence on trading, as selling in Treasuries continued.

Thursday morning another battery of positive economic reports sent stock prices up, but not dramatically.  First-time unemployment claims for the week ended March 10 hit a 4-year low, which was also visited in February.  Claims fell by 81,000 from the previous week, coming in at 351,000.  Continuing claims, those filing for a second week of benefits, numbered 3.34 million, but were down 81,000 from the previous week.

February’s producer price index, which checks on inflation at the wholesale level, rose 0.4% — up from the previous gain of 0.1%.  The core rate, however, rose 0.2%, which was half the gain in January.  The core rate, which is the rate the Fed watches, eliminates food and energy costs.

The other two reports zeroed in on local manufacturing.  The NY Empire State index for March rose to 20.2 from 19.5 in February.  The Philly Fed index climbed to 12.5 — up from the previous 10.2 reading.  While both these indices came in below expectations, they have been rising for the past several months.  The pace of these gains might not be as fast as many hoped, but it does show slow but steady improvement in manufacturing, which has been a major problem area during this recession.

These indicators had only a small effect on stocks, which continued to climb step by step rather than by leaps and bounds.  The Dow is holding above 13,000, and the S&P 500 hit 1,400 for the first time since June 2008.  The yield on the 10-year note was unchanged until the last half-hour of trading when it edged up to 2.28% from 2.27%.

Friday capped what was the worst week for bonds since July.  Three bond-friendly reports slowed selling in bonds, but nothing could stop the juggernaut created when the Fed offered its upbeat assessment of the economy on Tuesday.

The consumer price index, which monitors inflation in retail prices, showed a 0.4% gain in February versus 0.2% the previous month.  Gas prices, however, accounted for a whopping 80% of the increase.  The core rate, which eliminates gas and food prices, was 0.0%.  Economists believe that, in the bigger picture, inflation is under control.

Industrial production in February was unchanged, after posting a 0.4% gain in January.  Separately, the Thomson-Reuters/University of Michigan preliminary consumer sentiment survey for March surprised everyone by edging down to 74.3 from 75.3.  It was the first decline since August.

When the market closed Friday, the yield on the 10-year note was unchanged at 2.28 %.  During the session, however, it recovered after opening at 2.34%.

After last week’s avalanche of reports, this week seems pretty sparse.  The good news is that almost every report involves the latest stats on the housing market, although some are definitely more influential than others.

Monday the National Association of Home Builders index for February will be released.  It is likely to show another gain — up to 30 from 29.  This report reflects how confident builders are about the future, and it is on a roll.  As recently as September 2011, the index read 14.  This report, however, has minimal bearing on the markets.

Data on housing starts and building permits are due Tuesday and also have little impact.  Starts are estimated to rise to an annual rate of 702,000 units, up from 699,000 in January.  There are no estimates on how many permits may have been issued.  This report, however, is subject to big revisions.

On Wednesday the report on existing home sales in February could influence trading.  Analysts expect the annual average of sales to rise to 4.60 million units, which would be a slight increase over the January total of 4.57 million.

Thursday is first-time unemployment claims day, as the number of claims filed for the week ended March 17 are due.  They hit a four-year low last week, and so far there is no reason to believe they will reverse course.

The Conference Board also releases its index of leading economic indicators for February.  It is expected to rise to 0.5% from 0.4% in March.  This indicator looks at 10 components and determines how the economy will fare over the next six to nine months.  Unfortunately, this report does not generate much activity in the markets.  Nor does the FHFA home price index for January, which is also on tap for Thursday.  December’s price index rose 0.7%, which was good news.  No predictions are available for January.

The final release of the week, new home sales for February, is expected to show a sizable increase.  Analysts believe annual sales will increase to 330,000 from 321,000 in January.  That would be in keeping with increased housing starts and the rising homebuilders’ index.  This report, however, does not impact trading like existing home sales.  The numbers just aren’t there.

Just because most of the indicators scheduled for this week are lackluster in their ability to move the markets, it doesn’t necessarily mean there won’t be any news.  There are still serious economic problems in Europe, and any situation that sours demand for stocks could boost buying in bonds.  Many economists, however, believe that in this new economic landscape, the 10-year yield will find a home somewhere between 2.10% and 2.50%.

Money Market Recap and Forecast

A lot of blood, sweat and tears have been shed over the past several months about the possibility that Greece would default on its economic obligations, but it looks like this upcoming part of the bailout will go through.  There was no hoopla; the markets didn’t go crazy.  The take-away from this troubling ordeal is that Treasury yields have remained low throughout.

Last week began with news that China, which boasts the world’s second largest economy, lowered its target for annual economic growth last Monday, sending stocks down in many countries around the globe, including the U.S.  Investors did not move to Treasuries; the 10-year note yield, which moves inversely to price, edged up by 1 basis point.

The economic reports were mixed and had little bearing on the market.  The February ISM index on the service sector rose more than expected, hitting 57.3% — up from 56.8% the previous month.  This caused only light selling of Treasuries.  Factory orders in January fell 1.0%, which was less than the predicted 1.5% decline.  But orders were down substantially from December’s 1.4% increase.

Later in the session Treasuries were hurt by talk of large amounts of corporate debt being sold that pay higher interest rates than the close-to-rock-bottom yields Treasuries offer.  At close the 10-year yield had risen to 2.00%.

Treasuries recovered Tuesday as global concerns about China’s flagging economy and Greece’s funding problems sent stocks plummeting.  Also on the list of worries is the declining state of economic growth in the European Union and the eurozone countries.  The 10-year Treasury closed at 1.94%.

Wednesday was another up-and-down day.  Stocks fell early, allowing Treasuries to maintain Tuesday’s yields.  But then ADP, the payroll giant, said that 216,000 jobs were added to private sector payrolls in February, sending stock prices and bond yields up.  Later the Wall Street Journal released an article stating that the Fed is considering a new bond program to ward off inflation.  Bonds liked the anti-inflation move, and yields slid.

The only economic report showed 4thquarter manufacturing production and costs on the rise.  Production costs jumped 0.9%, while unit labor costs rose 2.8%.  These are unsettling numbers when compared to final 3rdquarter data: production up 2.3% and labor costs -2.5%.  When labor costs rise faster than production costs, that’s a sign of inflation.  The 10-year closed at 1.96%.

A positive outlook for Greece overshadowed a disappointing report on first-time jobless claims for the week ended March 3.  Applications for benefits jumped by 8,000 to a higher-than-expected 362,000.  With investors finding no reason to buy Treasuries as stock prices climbed, the 10-year yield rose four basis points to close at 2.01%.

The February employment report took center stage Friday morning, as 213,000 jobs were added to nonfarm payrolls.  Although this was 30,000 fewer than in January, stocks posted decent gains, and Treasuries sold.  It was also noted that about 20% of the jobs added were temporary, but employers anticipate many will turn into full-time positions as the economy improves.  The unemployment rate held at 8.3%.

The U.S. trade deficit caught the attention of the markets.  The trade gap in January, which came in at -$52.6 billion, was $2 billion higher than in December.  It was the largest deficit since October 2008.  These numbers could negatively impact 1stquarter GDP.  Wholesale inventories in January rose 0.4%, which was down substantially from the 1.1% increase the previous month.

The Mortgage Bankers Association released another mixed report on mortgage applications for the week ended March 3.  Applications to purchase rose 2.1% while refis dipped 2.0%.

This week could be a little tough on Treasuries, as analysts expect upbeat reports on several economic indicators.  But then, analysts have been known to be wrong.  There are no reports due Monday, but retail sales for February are out early Tuesday, and they usually influence the markets.  Sales are forecast to rise 1.1%, which would dwarf the 0.4% January increase.  Excluding autos, sales should rise 0.7% — the same as the previous month.  If on target, retail sales should boost Wall Street and encourage selling in Treasuries.

January business inventories are forecast to increase by 0.5%, just slightly higher than December’s 0.4% rise.  This report is generally ignored by the markets.

Wednesday is almost a non-day as far as reports go.  Import and export prices indices for February are due but generally don’t affect the markets.  Import prices, however, are expected to rise 0.5% from the previous 0.3% increase.  There are no export price forecasts.

Four reports are due Thursday, and any one (or all of them) could influence trading.  First-time jobless claims for the week ended March 10 are due.  Claims have been holding in the 350,000 range for the past several weeks, so any numbers substantially above or below that would likely affect Treasuries.

February’s producer price index, which looks for inflation at the wholesale level, follows.  It is expected to rise 0.5%, which is much higher than the 0.3% increase the previous month.  The core rate, which is the one the Fed looks at, is expected to decline 0.2% from 0.4%; that should calm worriers.

Two manufacturing indices from February are also on tap, and both are expected to rise, which could put selling pressure on Treasuries.  The Philly Fed index looks at manufacturing conditions in the mid-Atlantic area, and it is expected to climb to 14.5 from 10.2 — a considerable move.  The NY Empire State index should hit 22.0, up from 19.5.  Manufacturing has not snapped back as hoped; for the past few months, however, these indices have been moving up slowly, but steadily.

Friday there are three more reports before the markets close for the week.  First out and always important is the consumer price index, which keeps tabs on inflation at the retail level.  Analysts believe that it will have risen 0.5% in February, which is quite an increase from the previous 0.2% reading.  The core rate, which eliminates volatile food and energy prices, should show a 0.2% increase, which would be good news when compared to January’s 0.4% increase.  A rise in the CPI, however, could worry bond investors because inflation erodes the value of longer-term fixed-rate assts.

Industrial production in February is expected to move up 0.3%, which is a good number compared to the 0.0% reading in January.  But it also means that manufacturing may be recovering, which could lessen the need for safe-haven buying.  Capacity utilization should hold at 78.7.  The preliminary Thomson Reuters/University of Michigan consumer sentiment survey for March is predicted to increase to 76.0 from the February final of 75.3.  Although not a big jump, it is yet another indication that perhaps things are moving in a more positive direction.  That could send 10-year yields up.