Market Reports
A Mortgage Update from Jay Skwierawski for the week of June 8
Hello Everybody!
Interest rates rose slightly this week, but it could have been a lot worse.
Most of the economic news out this week was positive, or at least better than anticipated. However, the indicator that moved the market the most was the unemployment rate reported on Friday.
Here's a recap of the news that came out:
On Monday and Tuesday, the mortgage bond market improved as the stock market sold off, and investors moved their money from stocks into bonds. On Wednesday, the ADP National Employment Report was released showing an increase in jobs in the month of May. This report, while often times incorrect, comes out a few days before the government releases the official employment numbers. The markets jumped all over the number this time around, because a loss of jobs was anticipated. Every once in a while the ADP people get it right, so investors started to second guess what Friday's report would show. Also on Wednesday, Productivity at the nation's factories came in higher than expected as did the ISM Services Index. The positive news on the economy was good for stocks, and bonds suffered as investors pulled their money out of bonds and put it back in the stock market. On Thursday, bonds took it on the chin again as first time unemployment claims came in much lower than expected. Now market players were really starting to second guess how Friday's employment report would look. But as is often the case, when the big enchilada came on Friday, it had some surprises, but not the surprises the market was starting to anticipate. The economy lost 49,000 jobs, which was less than expected. The big news of the day was that the unemployment rate unexpectedly jumped from 5% to 5.5%. This was the largest monthly increase in over two decades. This was much worse than the market expected and remembering that bad economic news tends to be bad news for the stock market, but good news in turn for the bond market,, the news was indeed good for the bond market, and the mortgage bond market recouped much of what it had lost throughout the week.
The week ahead brings numbers on inflation and retail sales, which could have an impact on mortgage rates:
Tuesday - Balance of Trade (Moderate)
Wednesday - Crude oil inventories (Moderate)
Wednesday - Beige Book is releases showing how the economy is fairing in the different Federal Reserve Bank areas (Moderate)
Thursday - First time unemployment claims (Moderate)
Thursday - Retail Sales and Retail Sales excluding automobiles (HIGH)
Friday - Consumer Price Index (CPI) and Core (excluding food and energy) CPI (HIGH)
Friday - Consumer Sentiment
Although there isn't a lot of news coming out this week, the markets will definitely be watching the retail sales figures to see if the economic stimulus checks are being spent, and the inflation numbers out on Friday to see if the increase in fuel costs is being passed on to consumers. As I am typing this, the news is on and they are reporting that the nationwide average cost of a gallon of gas just went above $4.00 for the first time. And with the cost of oil increasing by over $10 a barrel on Friday alone, $5.00 a gallon might not be that far off. OUCH!
The chart above shows the price of mortgage bonds over the past 90 days, with the most recent on the right. Remember that green and up are good, red and down are bad. You'll notice that on Monday and Tuesday, the bond got back over the 200 day moving average, which was good for rates. Then the sell off on Wednesday pushed them back below the 200 day moving average. Thursday and Friday they traded firmly below it. Traders will be watching this week to see if they can work their way back above the blue line. If they do, that would bode well for mortgage rates. If they don't, then look out!
We'll keep you posted on any major developments in the mortgage market. In the mean time, have a great week!
Thank you!
Jay Skwierawski
President
First Sterling Mortgage Services, LLC
737 North Michigan Avenue, #1900
Chicago, IL 60611
312.268.7601
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