More Bad News May Cause Rates To Go Lower

Bonds have been trading in a clear, long-term Rising Wedge, after the steep decline in late 2010. In many cases - the Bond will continue to rise over time right into this apex - meaning that rates could end up lower in the weeks ahead - but potentially not without volatility.

Which way will Bonds break out of this Rising Wedge is the $64,000 question that will be answered in the weeks ahead. We could see a continuation higher out of this trend - which could mean even lower ...rates.

A lot will depend on Europe and Friday's Jobs Report - which will then influence what the Fed does at the next Fed Meeting on June 20th. Will there be more QE and if so, how will the Bond perceive it? If the Bond reacts negatively like it has on past official QE announcements - then the next couple of weeks leading into the June 20th Meeting will really present a wonderful opportunity to line up your clients to get a mortgage as Mortgage Bonds creep towards this apex. This is a technical and fundamental opportunity for rates that won't last forever and one thing we know for sure - when prices break to the downside out of a Rising Wedge - the price action to the downside is typically very fast - like people exiting a building when someone yells "fire".

Is the Consumer Confidence really showing confidence?

For the third consecutive month consumer confidence fell, dropping to 64.9 in May to the lowest level since the January reading of 61.5. When the economy is growing at a strong pace, consumer confidence readings usually reach levels of 90 or more.

The consumer confidence survey measures the level of confidence individual households have in the performance of the economy now and in the future. It is a leading indicator of future spending and the business cycle. 5000 consumers in the nine census divisions across the country are surveyed each month. The level of consumer confidence is directly correlated to the strength of consumer spending, which accounts for two-thirds of the economy.

Is The Euopean Union Crumbling?

It's all about the EuroZone. As we mentioned Greece is not accepting austerity measures and riots are getting larger. Markets have started to price in the exit of Greece from the Euro. Standard & Poor’s minutes ago downgraded 5 Spanish bank...s. Eleven Euro leaders have been ousted and if things continue on this path we should expect those economies to be picked off one by one. This should strengthen the dollar and create a flight to quality to our Bond market. As we mentioned, this could cause rates to drop possibly as low as 3.5% for 30 year fixed. Are you prepared? Call me to find out how to position yourself if this occurs.

New Home Sales For April

New home sales for April increased 3.3% to 343,000. This is up from the upwardly revised number of 332,000 in March. For the last 3 months, new home sales have averaged 344,000. This is up 14% over the same period last year.

The New Home Sales report shows the number of newly constructed homes with a committed sale during the month. It is compiled through nationwide survey of 10,000 builders/owners of 15,000 building projects and through sampling of permit-issuing offices, as well as land not covered by building permits. The data is timely and is used in conjunction with the existing home sales release from the National Association of Realtors. The level of new home sales indicates housing market trends, and economic momentum signaling consumer purchases of furniture and appliances. Simply, the volume of sales indicates housing demand.

Housing Starts Show Small improvement

Housing starts for April increased 2.5% to 717,000 annualized units. This is up from the March reading of 699,000.

The Housing Starts report measures the number of residential units on which construction is begun each month. A start in construction is defined as the beginning of excavation of the foundation for the building and is comprised primarily of residential housing. It is a seasonally adjusted annualized rate of houses (residential units) started in a given month, taken from a sample of 844 out of 17,000 permit sites.

The Beginning Of The End?

Are we starting to see the beginning of the end of the Eurpoean Union? I have written off Greece for some time now but with the election of the Socialist candidate in France, the 9th EU leader swap, we may be adding other countries to the list. The new leader wants more ECB lending, flood Euros into the economy (20 Billion), tax the wealthy and lower the retirement age - sound familiar? Accepting the bailout money but refusing the austerity measures, so when will Germany be forced to throw in the towel? A fresh round of uncertainty is sending the Euro lower and giving a boost to the US Dollar and Bonds.

Both Italy and Germany reported higher than expected unemployment rates, with the former showing the highest reading since 2000. That means more economic pain is likely to come and is Bond friendly. The ADP Report, which provides a read on private sector job health, showed an anemic 119,000 private sector job gains. All recent economic indicators point to a slowing economy and as we mentioned this could stir rumors of QE3. Bonds are testing all time highs and if they can break through resistance rates may hit all time lows, see chart and blue trendline.