Market Update - 03-02-2011

Handicapping the direction of interest rates has been a challenge of late, one that requires a strong stomach and three charts. The charts needed are for oil, stocks, and the 10 year note. Really, we only need the oil chart as that commodity has been in the driver’s seat. Take today’s trade. Oil (WTI) up nearly $2.00 at $101.50. Brent crude, the type that fuels most of Europe produced in the North Sea/Middle East, is over $117.00 a barrel. Stocks have been down most of the morning. Bonds are off a touch but near unchanged. As oil goes up, stocks fall and bond yields go lower (better mortgage pricing). In a nut shell, that has been the pattern of late. Just to show you how strong the correlation has been, take today’s ADP Employment report estimate for Friday. ADP calls for job growth of 217K, well above expectations. Under “normal” fundamental data released trading environments, stocks would have soared, bonds would have dropped, and mortgage pricing would probably have gotten pinched for .375 to .50. None of the above happened because it’s all about oil. Speaking of oil, just think of how it affects all Americans. A one cent increase at the pumps takes 1 billion in purchasing power out of total consumer dollars available. Don’t know about you but it seems like that one cent has been multiplied by 40 just in the past two weeks. Even Big Joe is complaining about what it will cost him to fill up his boat. Maybe a trade is in his future for one he can paddle! In other news, mortgage applications slipped a little last week, down 6.5%. Fed Chief Bernanke is back on the hill for day two of testimony. He’s in no rush to tighten credit even after QE2 (asset buying) is complete. I think he is in denial about inflation expectations. Maybe he and Charlie Sheen go to the same gym. Currently, the 10 year note is down 2/32’s (yield 3.42%), mortgage backs off 2/32’s, and stocks down 8 points on the big board.

Scotty


Scott Eggen
SVP, Capital Markets
PrimeLending, A PlainsCapital Company
18111 Preston Road, Suite 900
Dallas, Texas 75252

-----------------

© 2011 PrimeLending, A PlainsCapital Company. Trade/service marks are the property of PlainsCapital Corporation, PlainsCapital Bank, or their respective affiliates and/or subsidiaries. Some products may not be available in all states. This is not a commitment to lend. Restrictions apply. All rights reserved. PrimeLending, A PlainsCapital Company (NMLS no: 13649) is a wholly-owned subsidiary of a state-chartered bank and is an exempt lender in the following states: AK, AR, CO, DE, FL, GA, HI, ID, IA, KS, KY, LA, MN, MS, MO, MT, NE, NV, NY, NC, OH, OK, OR, PA, SC, SD, TN, TX, UT, VA, WV, WI, WY. Licensed by: AL State Banking Dept.- consumer credit lic no. MC21004; AZ Dept. of Financial Institutions- mortgage banker lic no. BK 0907334; Licensed by the Department of Corporations under the California Residential Mortgage Lending Act- lender lic no. 4130996; CT Dept. of Banking- lender lic no. ML-13649; D.C. Dept. of Insurance, Securities and Banking- dual authority lic no. MLO13649; IL Dept. of Financial and Professional Regulation- lender lic no. MB.6760635; IN Dept. of Financial Institutions- sub lien lender lic no. 11169; ME Dept. of Professional & Financial Regulation- supervised lender lic no. SLM8285; MD Dept. of Labor, Licensing & Regulation- lender lic no. 11058; Massachusetts Division of Banking– lender & broker license nos. MC5404, MC5406, MC5414, MC5450, MC5405; MI Dept. of Labor & Economic Growth- broker/lender lic nos. FR 0010163 and SR 0012527; Licensed by the New Hampshire Banking Department- lender lic no. 14553-MB; NJ Dept. of Banking and Insurance-lender lic no. 0803658; NM Regulation and Licensing Dept. Financial Institutions Division- lender license no. 01890; ND Dept. of Financial Institutions- money broker lic no. MB101786; RI Division of Banking- lender lic no. 20102678LL and broker lic no. 20102677LB; TX OCCC Reg. Loan License- lic no. 7293; VT Dept. of Banking, Insurance, Securities and Health Care Administration- lender lic no. 6127 and broker lic no. 0964MB; WA Dept. of Financial Institutions-consumer lender lic no. 520-CL-49075. PrimeLending, A PlainsCapital Company is an Equal Housing Opportunity Lender.