Mortgage Applications Fall

The refinance index was to blame for all the decline as it fell by -11.8%.  The Purchase index meanwhile rose by 1.1%.  The average rate on the 30 year mortgage rose to 5.57% from 5.25%.  A month ago the rate was 4.76% and a year ago the rate was 6.24%.  The higher yields have shut down refinancings.  Higher purchases despite the gain in rates is a positive.

Oil is up this morning pushing the commodity currencies up like AUD/USD, NZD/USD, and USD/CAD.  Later this afternoon, the Reserve Bank of New Zealand has their interest rate meeting .  No change is expected but there may be some talk from officials about the high value for the NZ dollar. 

The AUD/USD is up on expectation that China Industrial Production to be released tomorrow will be higher than expectations (June 11th 10 PM). The expectation is for Industrial Production to be up 7.7% YoY vs 7.3%  in April.  Retail Sales from China will also be announced with the expectation of a YoY rate of +15% from +14.8% last month.  Austalia benefits from increased growth in China as they are a large exporter of commodities for their expansion.

This morning it was reported that Russia would diversify some of their holdings out of the US dollar.  They said they would purchase IMF bonds instead.  This has helped lead to the dollar decline this morning. We spoke of this possibility in a prior post as well as the implications for higher rates as a result.  Yields are indeed up today.

There is the 10 year treasury auction later today. It will be interesting to see how the auction goes today in light of the Russian comments on their treasury purchases.  Treasury 10year yields (and all treasury yields for that matter) have been rising dramatically of late as a combination of currency diversification, crowding out and the idea of a global recovery has led to the sharp upturn. The higher yields threaten any recovery in the housing market/commercial real estate market.

The US Trade Deficit numbers for April will be released at 8:30.  The expectation is for a worsening to -29.0 Billion from -27.6B.  Watch the Real or inflation adjusted deficit as this is what is used to calculate the GDP effect. The trade values are also influenced by the price of oil which continues to move higher.  This has the effect of rising the headline or nominal Trade Balance. The Real Trade Balance may go down if demand is down, however.

Stocks are up strong today around the world.