Wednesday, July 30, 2014 - Article by: Joe Shamie - First Choice Loan Services -
Wednesday - July 30, 2014, 10:15am ET
Current Trend Direction: Sideways
Float/Lock Bias: Carefully floating
Current Price of FNMA 4.0% Bond: $105.34, -25bp
A very big uptick in 2nd Quarter economic growth is pushing Stocks higher and Bond prices lower this morning.
The government reported that the first reading on 2nd quarter Gross Domestic Product (GDP) surged by 4%, above the 3.2% expected and up from the -2.1% in the 1st Quarter, which was revised from -2.9%. The big gains were led by an uptick in consumer spending and business investments. Also contributing to the 4% gain was a rise in state and local government spending.
This is a good number, but it is the first of three and is based on data that is incomplete or subject to further revisions by the Bureau of Economic Analysis. We have seen one off numbers like this in the past few years, only to move lower in subsequent quarters. When combining the -2.1% from the 1st quarter and the 4%, it brings the average to 1.9%, still an anemic number several years post-recession. We will have to see what future reports bring as the 2nd half of the year continues.
Over in the job markets, ADP reported that private payrolls rose by 218K, just above the 215K expected, but down from the 281K recorded in June. Expectations ranged from 215K to 230K. The numbers didn't have much of an impact on trading when it was reported ahead of GDP. The number comes ahead of Friday's government July Jobs Report where it is expected that 220K jobs were created in both the public and private sector. The labor market has definitely improved. For the longest time, the economy was producing just 140,000 jobs a month now it is clearly above the 200K level. This is good news.
That brings us to this afternoon's 2:00pm ET release of the Fed's monetary policy statement. With today's surge in GDP, could the Fed bring on a bigger taper than the total $10B that is expected to make a bold statement? Maybe. The Fed is currently purchasing $15B in Mortgage Backed Securities and $20B in Treasuries per month and may want to convey, with a larger taper, that QE3 is done by October or sooner.
Technically, the 4% coupon is trading just below resistance at both the 25 and 50-day Moving Averages and at the bottom of the trading range. We will continue to float ahead of the Fed statement, but as we said in yesterday's Closing Technical Signal, "We will carefully float, but if your rate sheet is favorable and you can't afford to lose any pricing on short term files, five business days, go ahead and lock." Looking ahead clients should be lined up and ready to lock ahead of Friday's July Jobs Reportespecially on the aforementioned short-term deals.
Joe Shamie NMLS # 241432
First Choice Loan Services NMLS # 210764
First Choice Bank NMLS# 177877
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