Lender411.com Articles Mortgage Trends

Link to this page Print RSS  

In early trade, equity futures were indicating a higher opening on Wall Street on anticipation of not so terrible European stress test results. Treasuries were under pressure with the long end weakest and down about 50 basis points. MBS prices opened down about 16 basis points. In Europe, better economic data-UK's economy grew almost twice as fast as expected in Q2, +1.1%, the biggest rise in four years. In Germany, business sentiment was up by a record margin in July, the highest in three years. Adding to strength to the futures this morning were earnings from some notables-McDonald's, Verizon, American Express, Microsoft and Ford; they all beat analysts' estimates. The one big negative report was from Amazon who missed estimates. As the morning progressed, futures weakened as markets in the UK and France turned negative and MBS prices recovered their earlier losses and turned positive. The DJIA opened up lower and MBS prices were essentially flat.

The Committee of European Banking Supervisors (CEBS) will be releasing the stress test results of 91 banks from 20 different countries in the European Union. Banks and national regulators will be releasing the CEBS results of individual banks soon afterward or at about Noon Eastern Time. Early estimates are expected to show about only 10 banks that have failed to maintain a Tier 1 ratio of at least 6% under the most adverse scenarios used by the CEBS. (Reuters)

The economic outlook here and abroad is what the markets are focusing on. While earnings have been coming in better than expected and economic data mixed, the markets are worried about the next few quarters and are usually considered to be reflecting six months into the future. In this "new normal" all bets may be off. On the one side, the equity bulls feel that the economy will be okay and will show sustainable growth. On the other side, the fixed income bears think that the economy will be slowing down much more than we think and that sustainable growth is questionable. This is what we think that Bernanke was trying to tell us when he said that the Fed is not ready to make any more moves and that they are still evaluating the current "recovery". Humpty Dumpty sits on a wall. On which side will Humpty Dumpty fall?

Treasury announced this morning that they will sell an additional 1.5 billion Citibank common shares further reducing its 27% stake that it acquired during the financial crisis. This is a profitable sale for the government and we think that ultimately, when the government sells it MBS holdings, they too will be significantly profitable.

Last night the SEC gave a 6 month reprieve to companies trying to bring asset-backed securities to market allowing them to exclude ratings from their prospectuses. They will give companies the time to adjust to the new rules. Companies will be forced to rely on their own research and analysis which they should be doing anyway. Will this become a permanent change in the rules? As we navigate the new regulations, situations like the Ford Motor Credit problem will arise. It will come down to the ability of the regulators to act in a very timely manner. The vagueness of the new regulations was intended in that it allows for the flexibility that we need at times such as this.

There are no economic releases in the US today. The debt markets will take their cues from equities.

Crude oil is down this morning after a big run-up on threats of a storm in the Gulf which was upgraded to Tropical Storm Bonnie. The storm is expected to head toward the area in the Gulf that houses most of our oil platforms. Most personnel have been evacuated from the area already and BP has been forced to stop its work on the leaking pipeline.

Link to this page Print RSS