Worries of Tapering Send Mortgage Rates Through the Roof, Refinancing Begins to Fall

“Worries the Federal Reserve may begin to slow its stimulus efforts sent mortgage rates last week to their highest level in a year, drying up demand for home refinancings, data from an industry group showed on Wednesday.

The Mortgage Bankers Association said interest rates on fixed 30-year mortgage rates surged 12 basis points to average 3.9 percent in the week ended May 24. It was the highest level since May 2012 and the biggest jump in 14 months.

The rise sent the seasonally adjusted index of mortgage application activity down 8.8 percent as refinancing applications tumbled 12.3 percent. It was the biggest drop in refinance applications this year as demand fell to the lowest level since December.

The refinance share of total mortgage activity decreased to 71 percent of applications from 74 percent the week before.

Still, the gauge of loan requests for home purchases, a leading indicator of home sales, rose 2.6 percent, suggesting potential homeowners may have sought to lock in a still-low rate….”

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“Citigroup has reached a settlement with a federal agency that had accused the bank of misleading Fannie Mae and Freddie Mac into buying 3.5 billion of mortgage-backed securities.

The settlement with the Federal Housing Finance Agency was disclosed in a filing on Tuesday in U.S. District Court in Manhattan, where a series of related cases by the agency against Wall Street banks are pending.

The filing did not disclose the terms of the deal. FHFA spokeswoman Stefanie Johnson said the settlement was “satisfactory” but declined to say how much Citi would pay….”

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“FRANKFURT (Reuters) – Loans to the euro zone’s private sector contracted for the 12th month in a row in April, raising pressure on the European Central Bank to take fresh policy action to help lift the bloc out of recession.

Loans fell 0.9 percent from the same month a year ago, ECB data showed on Wednesday, a slightly bigger fall than the mid-range forecast for a drop of 0.7 percent in a Reuters poll of economists.

The ECB, which meets next week, has flooded banks with money but many still remain wary of lending to businesses – particularly in the recessionary periphery of the euro zone – against a weak economic backdrop and uncertain outlook.

Banks granted non-financial firms 18 billion euros less in loans in April than in the previous month, data adjusted for sales and securitizations showed, after a fall of 2 billion euros in March.

“The marked fall in lending to euro zone businesses in April ramps up pressure on the ECB to come up with concrete measures aimed at improving credit availability to companies, especially small and medium-sized ones,” said Howard Archer, economist at Global Insight.

ECB data also showed that loan growth rates vary greatly between euro zone countries, with those hardest-hit by the debt crisis seeing big reductions.

In Spain, lending to firms, excluding banks, fell 8.8 percent from the same month a year earlier. Ireland saw a 5.6 percent decrease, while lending fell 3.3 percent in Greece and 3.5 percent in Portugal.

German lending growth to firms was just above zero, as it recorded a 0.3 percent annual growth rate. Growth in the Netherlands, Finland and France was faster than that.

ECB MEETING….”

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“(Reuters) – Student loan provider Sallie Mae Corp said it would split the company into two publicly traded entities and named John Remondi as its chief executive officer.

Sallie Mae, the largest U.S. student lender, said it would separate its consumer banking business from the larger education loan management business as part of a plan to unlock value and enhance long-term growth potential.

The company, which trades under the formal name of SLM Corp, said the split will be undertaken through a tax-free distribution of common stock to its shareholders….”

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“NEW YORK (Reuters) – The number of foreclosed homes held steady in April, while there were fewer properties sitting in the pipeline, fresh signs the housing recovery is on track, data from CoreLogicshowed on Wednesday.

There were 52,000 foreclosures completed last month, the same amount as in March, but down about 16 percent from 62,000 in April last year, CoreLogic said .

Before the housing crisis, foreclosures averaged 21,000 a month between 2000 and 2006. There have been about 4.4 million completed foreclosures since the financial crisis began in September 2008.

There were about 1.1 million homes in some stage of foreclosure in April, down 2 percent from the month before and a drop of 24 percent from a year ago.

Foreclosure inventory accounts for 2.8 percent of all mortgaged homes….”

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“The Organization for Economic Cooperation and Development warned central banks that ending the global loose-money policies could result in much higher borrowing costs for governments.

“Exit from unconventional monetary policy, when needed, may be difficult to manage and less smooth than desirable, possibly leading to sharp rises in bond yields and serious negative consequences for growth in a number of advanced and emerging economies,” said OECD Chief Economist Pier Carlo Padoan. We think that the eurozone could consider more aggressive options. We could call it a eurozone-style QE.”

The rich-country group also cut its outlook for the US to 1.9% for this year, down from 2%. It expects global GDP to rise 3.1%, down from an earlier estimate of 3.4%. The eurozone is likely to shrink 0.6%, a more severe contraction than the 0.1% drop previously forecast.

Europe’s unelected executive body, the European Commission, is acknowledging that it’s unlikely that some countries meet their budget deficit targets, the Financial Times reports. The EC will emphasize structural reform and give Spain, France, and the Netherlands more time to lower deficits to 3% ….”

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“(Reuters) – China’s Shuanghui International agreed on Wednesday to buy Smithfield Foods (SFD.N) for $4.7 billion in cash, in a deal that will increase the flow of U.S.-made pork to the world’s largest consumer of the meat.

The agreement comes after Smithfield’s largest shareholder agitated for change at the company, including a call to break up the Virginia-based pork producer.

The deal will be subject to review by the U.S. Committee on Foreign Investment, Smithfield said in a statement, which will come at a time of testy relations between the U.S. and China on matters of cross-border transactions.

China is also the third-largest market for U.S. pork – a brand of meat in high demand lately, as China suffers through another series of embarrassing food safety scandals, involving everything from rats to pigs.

The price of Shuanghui’s offer is $34 per share, a 31 percent premium to Smithfield’s stock price. Shuanghui will assume $2.4 billion of Smithfield’s debt

Shuanghui has promised to maintain Smithfield’s operations, staff and management. The thrust of the deal is to send the U.S. made pork to China, a factor that one person familiar with the matter said would help during Shuanghui’s CFIUS review…..”

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“Morgan Stanley (MS), the biggest property investor among Wall Street banks before the financial crisis, is trying to raise $1 billion to $3 billion for a new global real estate fund amid appetite for higher-yielding investments, said two people with knowledge of the effort.

The firm is seeking a large contribution from China Investment Corp., which owns 6.4 percent of New York-based Morgan Stanley, said one of the people, who spoke on condition of anonymity because the fundraising is private. Calls to CIC’s news department in Beijing weren’t immediately answered.

Matt Burkhard, a spokesman for Morgan Stanley, declined to comment on fundraising….”

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“Gold advanced in New York and London, trimming a second monthly decline, as lower prices lured buyers of the physical metal amid an extended drop in holdings in exchange-traded products. Silver also gained.

The U.S. Mint is on pace to sell 62,100 ounces of gold coins in May, 17 percent more than a year earlier, according to data released yesterday. The agency resumed taking orders for its one-tenth ounce gold coin yesterday, said Michael White, a mint spokesman. Sales were suspended in April while demand surged after prices tumbled. Gold has slumped 17 percent this year in London as investors slashed holdings in exchange traded funds amid speculation the U.S. Federal Reserve would taper asset purchases that helped bullion cap a 12-year bull run in 2012.

“In contrast to demand among institutional investors, who withdrew funds from the gold ETFs again yesterday, gold demand among retail investors thus remains extremely robust,” Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt, said in an e-mailed report today.

Gold for August delivery advanced 0.8 percent to $1,391 an ounce by 8:04 a.m. on the Comex in New York. The price headed for a 5.5 percent drop in May and a second monthly decline. Trading volumes were 98 percent higher than the average for the past 100 days for this time of day, according to data compiled by Bloomberg. Spot gold rose 0.8 percent to $1,391.56 an ounce in London. Prices fell 1 percent yesterday as U.S. economic data backed the case for a cut in monetary stimulus by the Fed.

Holdings Shrink…”

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“West Texas Intermediate crude fell before data likely to show a decline in U.S. gasoline stockpiles as OPEC delegates in Vienna indicated the group will leave its output target unchanged at this week’s meeting.

Futures dropped as much as 1 percent in New York after gaining for the first time in a week yesterday as U.S. consumer confidence rose to the highest in five years. The Organization of Petroleum Exporting Countries will keep its production limit at 30 million barrels a day at a May 31 meeting in Vienna, said two delegates who asked not to be identified because the decision isn’t yet final. An Energy Information Administration report tomorrow may show gasoline supplies dropped 650,000 barrels last week, according to a Bloomberg News survey.

“OPEC will be a non-event, as the key producers seem quite happy with the status quo,” saidCarsten Fritsch, an analyst at Commerzbank AG in Frankfurt. “In the inventory report, gasoline stock change will be most important to watch,” with the U.S. entering the peak summer driving season, he said.

WTI for July delivery was at $94.14 a barrel, down 87 cents, in electronic trading on the New York Mercantile Exchange at 12:56 p.m. London time. The volume of all futures traded was 3 percent above the 100-day average. The contract climbed 86 cents to $95.01 yesterday. Prices are up 0.7 percent this month after losing 3.9 percent in April.

China Loans…”

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“U.K. retail sales fell the most in 16 months in May as demand for food and drink declined, according to an index by the Confederation of British Industry.

A gauge of annual sales growth dropped to minus 11, the lowest since January 2012, from minus 1 in April, the London-based lobby group said today. Economists had forecast an increase to 3, according to the median of 12 estimates in a Bloomberg News survey. Retailers expect the volume of sales to return to growth in June, the report showed.

Higher energy prices and weak wage growth have helped to curb consumer spending. Data earlier this month showed that expenditure by households rose just 0.1 percent in the first quarter, the least since the third quarter of 2011.

“Most sub-sectors reported flat or falling sales over the year, with only furniture and carpets and recreational goods seeing strong growth,” the CBI said. Still, “a narrow balance of retailers again expect the overall business situation to improve over the next three months, with three quarters expecting conditions to remain stable.”

A gauge of the volume of orders placed with suppliers dropped to minus 25 in May from minus 12 in April. A measure of sales volumes for the time of year rose to minus 17 from minus 27. A three-month moving average of sales slipped to minus 6 from minus 4….”

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“The Organization for Economic Cooperation and Development cut its economic forecast forItaly for the second time this month as weak household demand extends the longest recession in more than two decades.

Italy’s gross domestic product will contract 1.8 percent this year before rising 0.4 percent in 2014, the Paris-based OECD said today in its Global Economic Outlook. That compares with a 1.5 percent decline for 2013 and growth of 0.5 percent in 2014 forecast in a May 2 survey on Italy, which revised its November predictions.

The country’s recession “will continue throughout 2013 as the effects of fiscal tightening and restrictive conditions bear down on economic activity,” the OECD said in today’s report. “Employment and hours worked will continue to fall, constraining household budget and consumption spending.”

Italy slipped into recession in the final quarter of 2011. The austerity policies of former Prime Minister Mario Monti, which helped bring the budget deficit within the European Union limit, deepened the slump in the EU’s third-biggest economy and pushed the jobless rate to the highest in almost 20 years.

“With employment likely to decline in 2013-14 and with the household saving rate having fallen significantly over the past few years, not much growth in consumer demand can be expected,” the OECD said today.

Household Demand….”

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“German unemployment rose more than four times as much as economists estimated in May as the euro area’s sovereign debt crisis and a long winter took their toll on Europe’s largest economy.

The number of people out of work climbed a seasonally adjusted 21,000 to 2.96 million, the Nuremberg-based Federal Labor Agency said today. That’s the fourth straight monthly gain. Economists predicted an increase of 5,000, according to the median of 35 estimates in aBloomberg News survey. The adjusted jobless rate held at 6.9 percent, just above a two-decade low of 6.8 percent….”

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“The Organization for Economic Cooperation and Development forecasts global economic growth will accelerate in 2014 with both the U.S. and Japan continuing to outpace the euro area.

“The global economy is moving forward and it is doing so at multiple speeds,” OECD Chief Economist Pier Carlo Padoan said today in the Paris-based organization’s semi-annual Economic Outlook. Differing monetary and fiscal choices across the major developed economies are driving regional divergence with “each path carrying its own mix of risks,” he said.

Global central banks are continuing to try to bolster their economies, with the Federal Reserve buying $85 billion of debt a month and the Bank of Japan unveiling unprecedented stimulus last month. In the euro region, where the European Central Bank cut its benchmark rate to a record low this month, the OECD said “more can be done through further non-conventional measures.”

The OECD sees U.S. gross domestic product rising 1.9 percent this year and 2.8 percent in 2014, while Japan’s will increase 1.6 percent and 1.4 percent. The euro-area economy will shrink 0.6 percent this year before expanding 1.1 percent next, according to the report.

In a separate release today, German unemployment rose more than economists forecast in May as the euro-region debt crisis and a long winter took their toll on Europe’s largest economy. The number of people out of work climbed 21,000 to 2.96 million. Economists predicted an increase of 5,000, according to the median of 35 estimates in a Bloomberg News survey.

Some Optimism…”

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“European stocks fell, after the Stoxx Europe 600 Index rallied the most in a month, on concern that the Federal Reserve will reduce debt purchases as the economy strengthens. U.S. stock-index futures dropped, while Asian shares advanced.

PSA Peugeot Citroen declined 2.3 percent following a French newspaper report that Europe’s second-biggest automaker may sell new shares to raise cash. Evraz Plc fell to a record low after Stoxx Ltd. said it will delete the commodity producer from its benchmark Stoxx 600 next month. Hennes & Mauritz AB dropped 2.2 percent as Goldman Sachs Group Inc. recommended investors sell the shares.

The Stoxx 600 retreated 1.4 percent to 304.08 at 12:41 p.m. in London. The equity benchmark is still heading for a 2.5 percent advance in May, its 12th monthly gain and longest streak since 1997. It has rallied 8.7 percent so far this year, bolstered by central-bank monetary stimulus. Futures on the Standard & Poor’s 500 Index lost 0.6 percent today, while the MSCI Asia Pacific Index added 0.5 percent.

“My biggest worry is that central banks will lose their credibility, and that the Fed in particular, which has embarked on this huge quantitative-easing program, will lose the faith of investors,” Kevin Adams, who helps oversee about 69 billion pounds ($104 billion) at Henderson Global Investors in London, told Mark Barton and Anna Edwards on Bloomberg Television.

Treasuries and bonds around the world fell on concern the Fed will trim its debt purchases. The yield on U.S 10-year bonds increased three basis points to 2.19 percent in London, the highest since April 2012, after earlier reaching 2.23 percent, Bloomberg data show.

Fed Purchases…”

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“SoftBank Corp. (9984)’s $20.1 billion takeover of Sprint Nextel Corp. (S), the third-largest U.S. wireless carrier, got national-security clearance from U.S. officials.

Softbank was notified yesterday by the Committee on Foreign Investment in the U.S. that it has completed its investigation of the proposed transaction and found no unresolved national-security issues, according to a statement today. The deal is expected to close July 1, Softbank said.

Dish Network Corp. (DISH), which has made a $25.5 billion counteroffer for Sprint, has said allowing SoftBank to control a U.S. phone network would compromise national security. SoftBank uses some network gear made by Chinese manufacturers, and Sprint’s joint-venture partner Clearwire Corp. (CLWR) has Huawei Technologies Co. equipment in part of its network. Both carriers have said they plan to discontinue purchases and dismantle network equipment provided by Chinese companies.

“It’s positive for SoftBank’s share price as Dish has criticized this,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co. which oversees the equivalent of $4.8 billion. “One political barrier is cleared and it’s a plus for SoftBank.”

Shares Rise…”

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“Australia’s central bank may need to cut record-low interest rates at least two more times as mining investment peaks and slowing growth in China damps exports, said Pacific Investment Management Co., manager of the world’s biggest bond fund.

With resources investment providing 60 percent of Australian economic growth last year, policy makers need to act to support other sources of domestic demand, Sydney-based portfolio managers Adam Bowe and Robert Mead said today. The Aussie dollar is still high enough to restrict the economy even after dropping to a 1 1/2-year low, they said.

“Australian and global policy rates are reconverging and the risks are that there are more rate cuts to come rather than less,” Bowe said today in a phone interview. “The single cut currently being priced in by the markets looks like it won’t be sufficient unless the exchange rate suffers a more meaningful correction than the current decline.”

The Reserve Bank of Australia indicated weak inflation gives it scope for further reductions after cutting its benchmark rate to 2.75 percent this month. Non-mining industries are struggling to take up the slack in the economy, damped by a currency that is more than 20 percent overvalued on a purchasing power basis. The government last week said the resources-investment boom may be at its peak as A$150 billion ($144 billion) of projects have been scrapped or delayed.

Aussie Plunges….”

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“Australia’s dollar fell to the lowest since October 2011 versus its U.S. peer after the 10-year yield spread between the two countries’ debt narrowed to the least in more than four years on signs the American economy is improving.

Local bonds fell, with the 10-year rate climbing to a 2-month high, after U.S. Treasury benchmark yields rose to the most since April 2012. The Aussie weakened to a more-than four-year low against its New Zealand counterpart. Pacific Investment Management Co., which runs the world’s biggest bond fund, said it expects further interest rate cuts by the Reserve Bank of Australia as mining investment cools.

“The diminishing yield differential is one argument for the Aussie’s move lower,” said Michael Turner, a debt strategist at Royal Bank of Canada in Sydney. “There certainly seems to be some downside risk to growth in Australia. The risk is skewed for more easing by the RBA.”

The Australian dollar touched 95.36 U.S. cents, the weakest since October 2011, before trading at 95.38 at 3:53 p.m. in Sydney, 0.8 percent below yesterday’s close. It fell 0.6 percent to NZ$1.1840 after earlier dropping to NZ$1.1837, the lowest since January 2009. The Aussie weakened 0.8 percent to 97.78 yen. New Zealand’s dollar slid 0.2 percent to 80.57 U.S. cents and lost 0.3 percent to 82.45 yen.

Australia’s 10-year bond yield rose 15 basis points or 0.15 percentage point to 3.47 percent, after touching 3.5 percent, the highest since March 27. The U.S. Treasury 10-year yield rose to 2.23 percent today, a level unseen since April 2012. The spread between the two narrowed to 116 basis points yesterday, the least since November 2008.

U.S Economy….”

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“The Dollar Index rose for a second day before U.S. data tomorrow on first-quarter growth amid speculation the Federal Reserve will curb monetary stimulus.

The Australian dollar fell to the weakest level since October 2011 after the International Monetary Fund cut its growth forecast for China. A gauge of Asian currencies touched an almost eight-month low on concern investors will repatriate funds from emerging markets back to the U.S.

“The dollar is strong,” said Marito Ueda, the senior managing director at FX Prime Corp. (8711), a currency-margin company in Tokyo. “The U.S. economy is steadily recovering, and a reduction in monetary easing appears to be coming into view.”

The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against currencies of six major U.S. trading partners, added 0.3 percent to 84.349 at 6:50 a.m. inLondon. It reached 84.498 on May 23, the most since July 2010.

The dollar was little changed at $1.2845 per euro after rising 0.6 percent yesterday. The yen traded at 131.57 per euro from 131.59 and was little changed at 102.42 per dollar. The Aussie fell 0.8 percent to 95.40 U.S. cents, after dropping to 95.36, the weakest since Oct. 5, 2011.

The U.S. Commerce Department is likely to say tomorrow the world’s biggest economy grew at an annualized 2.5 percent pace in the first quarter, according to the median forecast of economists surveyed by Bloomberg News. It would be unchanged from the preliminary reading released last month.

U.S. Growth

U.S. real gross domestic product will probably expand 2 percent this year, compared with a 0.5 percent contraction in the euro region, a separate poll of economists shows. Japan’s economy is estimated to grow 1.4 percent…..”

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“The International Monetary Fund lowered its forecasts for China’s growth and said making “decisive” policy changes would put the economy on a more sustainable path.

Expansion will be about 7.75 percent this year and next, David Lipton, first deputy managing director of the IMF, said today at a press briefing in Beijing after concluding an annual review of China. In April, the IMF forecast growth of 8 percent this year and 8.2 percent expansion in 2014.

Lipton warned of risks from a record expansion of credit, with the revised outlook following an unexpected slowdown in the first quarter. Premier Li Keqiang, who took office in March, is planning policy changes that would open up more of the economy to private investment and alter a household-registration system that impedes urbanization.

“While China still has significant policy space and financial capacity to maintain stability even in the face of adverse shocks, the margins of safety are narrowing and a decisive impetus to reforms is needed to contain vulnerabilities and move the economy to a more sustainable growth path,” Lipton said.

At the same time, Lipton said China’s current monetary and fiscal policies are “appropriate” and the IMF isn’t suggesting China restrict credit now.

Lipton spoke after meeting with leaders including vice premiersWang Qishan and Ma Kai, People’s Bank of China GovernorZhou Xiaochuan, Finance Minister Lou Jiwei and Liu He, a vice chairman of the National Development and Reform Commission, according to the IMF.

Analyst Surveys…”

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