Market Reports
A mortgage update from Jay Skwierawski for the week of June 28
Economic Calendar for the Week of June 29 - July 03
Hello Everybody!
Interest rates fell slightly this week, as mixed, but mostly positive, economic news was offset by a favorable treasury bond auction and positive news out of a meeting of the Federal Reserve's Federal Open Market Committee (FOMC).
First the news out last week:
Tuesday - Existing home sales came in at 4.77 Million for May, which was higher than April's 4.66 Million, but lower than the 4.82 Million that was expected. This was good news for mortgage rates. Wednesday brought news that New Home Sales for May came in at 342,000. This was a drop from April's number of 344,000, and lower than the 360,000 that was expected. This was also good news for mortgage rates. Durable Goods Orders in May increased by 1.8%, same as in April. This was much better than the decrease of 0.9% that was expected. This was bad news for mortgage rates. On Thursday, first time unemployment claims showed a jump from the previous week to 627,000. This was much more than the 600,000 that was expected, and showed that jobs are still a problem for the economy. This was good news for rates, as bad news on the economy is typically good news for rates. The final revision of the Gross Domestic Product (GDP) number for the first quarter of 2009 came in at -5.5%, slightly better than the -5.7% reported last month, but still a very weak number. Friday's news on the Federal Reserve's favorite inflation numbers - the Personal Consumption Expenditures numbers, came in right in line with expectations, showing inflation running at a comfortable pace. Friday also brought news that Personal Income came in much higher than expected, while Personal Spending came in lower than expected. The result? The savings rate for May soared to 6.9% - the highest level since 1993. A high savings rate is a double edged sword. While it's good to see people saving, spending is the lifeblood of a strong economy. Finally, on Friday the consumer sentiment numbers were slightly higher than expected as consumers start to feel a little better about what's happening in the economy. But, can this number continue to grow without positive signs on the employment front?
In addition to economic news last week, there was also an auction of over $100 Billion in U.S. Treasury bonds. The auction went surprisingly well, with decent demand by foreign investors. This was very positive for the markets, considering that the last auction didn't go very well, and rates had to rise to increase demand. Also last week the Fed's Federal Open Market Committee met to discuss monetary policy. As expected, the didn't change interest rates, and made no major announcements or policy changes that would have riled the markets. They did say that they were going to continue their purchase of treasury bonds and mortgage backed securities. All in all the markets liked what they had to say, and reacted positively.
The week ahead will be shortened by a day, as the markets are closed on Friday for the 4th of July holiday. Although it's a short week, the news will be large, as important news on manufacturing and employment will be watched for signs of improvement. The employment report for June will be reported on Thursday. This is typically the most important economic report of the month. As shown in the chart above, the markets are anticipating that the unemployment rate moved closer to the psychologically important 10% figure. Also, the jobs lost/gained number is expected to show more jobs lost in June than in May. May's jobs lost number showed a huge improvement over the previous month and the number that was expected. Typically when that happens, the number is revised the following month to show a number more in line with original expectations. If the number for May is revised to show more jobs lost that previously reported, a rally could ensue in the treasury and mortgage bond markets, causing rates to go down. HOWEVER, if the market is revised for the better, or if June's number comes in better than expected, the result could be a sell-off in bonds, causing an increase in mortgage rates.
The chart above shows the economic reports due out this week. Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.
Jay Skwierawski
President
First Sterling Mortgage Services, LLC
737 North Michigan Avenue, #1900
Chicago, IL 60611
312.268.7601
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