Market Update

Mortgage applications for the week ending August 8th fell another 2.7%, despite mortgage rates being largely unchanged. Purchase apps were down 1.0%, while Refinance apps dropped 4.0%. Also hitting the wires this morning was the Retail Sales report for July, which came in unchanged and at its weakest levels since January. The ex-autos and core figures were barely in the positive, both up .1%. The consensus today has been for overall sales to rise .2%, with .4% gains seen in ex-autos and the core. Overall, weakness was spread across all sectors of the report. One thing that is important to note is that the Fed doesn’t have another FOMC meeting until mid-September, meaning they will see another retail sales report that could possibly relieve some of the bleeding from today’s numbers. Last thing on the list today is the 10yr auction around 12pm CST. Expectations are for decent demand, although with yields back down lower on an intraday basis, we might see a little weaker levels than recent auction stats.

 

The bond market reacted positively to this morning’s data, immediately trading down from around ~2.47% to 2.43%. The rebound today is preserving what’s left of the bullish trend that was in place for the short-term, although conditions still remain slightly overbought. Surprisingly, stocks are holding gains as well, not something that was expected after the weaker data this morning. Question is, who is right? Bonds or Stocks? The data, however, is competing with the ongoing flight to safety bid as the geopolitical events are not resolved, and until that time, this should remain overly supportive for Bonds. We see no reason to change our bias at this time so we still recommend getting your locks in at current levels, especially with the small rally we are seeing in MBS today. The market still needs strong day over day closing levels below the 2.40% level. Until then, it’s a range….until it’s not. Current levels – 10yr 2.42%, MBS up 5-6 ticks, and stocks up 63 points on the Dow.