Alcoa Profits Beat Expctations; Stocks May Be Poised to Run – Daily Mortgage Rate Update for July 13th, 2010
Stock Lever may take some wind from fixed-income securities; Trade Deficit, Treasury Budget, 10-year note auction also coming – Daily Mortgage Rate Update for July 13th, 2010
Pricing on mortgages and other fixed-income securities held basically flat yesterday as investors operated in nervous anticipation of aluminum giant Alcoa’s 2nd quarter earnings report after the close of business. They weren’t disappointed, as Alcoa posted higher-than-expected profits based on higher-than-expected revenue. Since then, more positive news has come through the earnings results of railroad operator CSX, which also beat expectations.
Alcoa and CSX don’t represent the entire market, but they certainly reflect other economic activity. As a manufacturer of basic materials, Alcoa doesn’t work unless other companies are ordering its products. CSX doesn’t transport goods unless other companies have finished or intermediate products that need to move from point A to point B. These two companies reports could indicate that still other companies had a successful 2nd quarter, as well, and that could lead to traders getting out of bonds and into stocks. This phenomenon, often referred to as the “Stock Lever” essentially causes traders to sell fixed-income securities when stocks are attractive, causing mortgage and Treasury pricing to deteriorate. I suspect we could see more of this should earnings reports continue to beat expectations.
The Trade Deficit increased more than expected in May, as growth in consumption of foreign goods outpaced export growth. There are concerns that the trade deficit could worsen if the European debt crisis impact is broad enough, however, labor changes in China may actually help the US trade balance with that country if more companies relocate manufacturing from China to the US as Chinese labor costs rise. The trade deficit does say one positive thing for interest rates: there are now $42.3 billion more that need to be spent on US assets, and the most common asset that foreign investors tend to purchase is long-term US Treasury securities.
There is an auction of 10-year Treasuries later today. It will be closely watched by mortgage traders, as it should be indicative of the degree to which the situation in the stock market is affecting investing plans. If there is a mid-day reprice today, it will come shortly after 1:00 and could go either direction depending on the results of the auction.
At present, the risks of floating are starting to substantially outweigh any potential benefits, except for closings more than 45 days out. At that longer time frame, the cost of the longer-term lock is higher, and the time-frame leaves enough opportunity for the market to recover if it does worsen in the meantime. I recommend locking on all loans funding within the next 45 days at this time.
Today is the last of the quiet days this week, as the next three days have substantial amounts of significant economic information coming. Tomorrow starts bright and early with retail sales, and wholesale inventories, two very meaningful indicators of consumer activity. If you have questions regarding Rhode Island Refinance Rates, or whether or not to lock your loan, please don’t hesitate to contact me by cell at (401) 263-8655, or by commenting on this post. Have a great day!
Related articles:
Dan Hartman is a Senior Mortgage Advisor with Province Mortgage Associates, and serves as an Adjunct Professor of Finance and Economics at Roger Williams University and the University of New Haven. He has been helping homeowners and homebuyers with their mortgage questions for over 10 years.
July 13, 2010 by Dan Hartman · 4 Comments
Related Posts
- Japanese Growth Revised Higher; Stock Lever Fully in Play – Daily Mortgage Rate Update for September 10th, 2010
- Dip in Unemployment Claims Could Lead to Rising Rates, Maybe – Daily Mortgage Rate Update for September 9th, 2010
- Questions About Future of Fannie, Freddie, Rise in Industrial Production Pressure Mortgage Pricing – Daily Mortgage Rate Update for August 18th, 2010
- Retail Sales Drop; Corporate Profits Through the Roof – Daily Mortgage Rate Update for July 14th, 2010
- Busy Week Begins With Nervous Anticipation – Daily Mortgage Rate Update for July 12, 2010
I have worked as a residential mortgage advisor since February of 2000 and a part of the founding team here at Province Mortgage. We believe that by doing right by a family today, we can create a relationship for life, and, hopefully, and ambassador who will share the experience with others. It is our team of professionals that helps us to create this experience.
Comments
4 Responses to “Alcoa Profits Beat Expctations; Stocks May Be Poised to Run – Daily Mortgage Rate Update for July 13th, 2010”Trackbacks
[...] after markets closed, Alcoa and CSX reported better than expected earnings, suggesting that the corporate side of the US economy is looking better than previously [...]
[...] stock lever was also a significant factor in mortgage pricing yesterday. After almost a week of declines, [...]
[...] yesterday, mortgage pricing deteriorated yesterday afternoon, principally due to the “stock lever” effect. Essentially, this effect is the result of money moving out of bonds and into stocks, [...]
[...] both bond and stock assets were favored. Normally, a phenomenon often referred to as the “stock lever” causes one class’ improvement to come at the cost of declining values in the other, [...]