Wednesday, April 30, 2014 - Article by: Joe Shamie - First Choice Loan Services -
Wednesday - April 30, 10:35am ET
Current Trend Direction: Sideways
Float/Lock Bias: Floating into Fed statement
Current Price of FNMA 4.0% Bond: $104.53, +9bp
O.1%....thats it?The government reported that the first reading on Gross Domestic Product (GDP) in the first quarter of 2014 came in at an anemic 0.1%, below the 1% expected and down from the 2.6% in the final quarter of 2013. The 0.1% was the weakest performance in three years. Of course the folks on TV spin the unusually harsh winter weather as the primary reason for the downturn in growth. Weakness was seen in investment in business equipment, residential home construction, US exports, government spending and as inventories increased at a much slower pace. The consumer spending component rose by 3% after a 3.3% advance in the fourth quarter. This rise was attributed to a surge in utilities, such as heating during the "harsh winter" along with increased costs for health care. So the harsh weather hurt GDP, but boosted consumer spending?
There is no way to spin this reportit flat out stinks. Yes the winter was rough but was it that unusual? Cmon!!! Let us know if it hits 30 degrees in July, then we can say unusual and start questioning the numbers. Heres the scoop we are six years into this recovery and things are far from recovered. Are we out of the abyss and the worst is behind us? Yes. But this economy is extremely fragile and the Fed, who is set on removing QE3, understands that more QE will not helpit hasnt done anything over the past couple years except to bring the Feds balance sheet to a staggering $4T.
ADP reported that private employers added 220K workers in April, above the 215K expected and above the 209K recorded in March, which was revised from 191K. It was the strongest reading in five months. The improved weather conditions were cited in April.
The big news today will be the Fed statement, which is due to be released at 2pm ET. The weak GDP data will be front and center as will the better than expected ADP numbers. The Fed will not be raising the short term Fed Funds Rate, currently at 0.25%, but the members should continue their tapering ways, most likely to a reduction of $10B - $5B in Mortgage Bonds, $5B in Treasuries.
Technically, the 4% coupon traded down to support at the 50-day Moving Average yesterday and early this morning, but did manage to bounce off that level after the GDP data. We will continue to float ahead of Friday's government Jobs Report for April. We will give you more details on the Jobs Strategy tomorrow, but we will most likely be locking late Thursday afternoon to avoid the headline risk associated with the release.
Joe Shamie NMLS # 241432
First Choice Loan Services NMLS # 210764
First Choice Bank NMLS# 177877
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