Market Reports
A Mortgage Update from Jay Skwierawski for the week of June 22
Hello Everybody!
Interest rates improved slightly last week (it's about time!).
Some soft economic news and more write downs announced by Citigroup helped to overcome oil's relentless march higher. We saw the stock market drop, and bondholders were the beneficiaries, as investors took their money out of the stock market and put it in the bond market. If the price of oil continues to rise, however, we could see these same investors pulling their money out of stocks AND bonds, which would cause mortgage rates to rise.
First, a look at the week that was:
The Empire State Index, which is a measure of the economy in New York came in much lower than expected. Industrial Production and Factory Capacity Utilization both came in lower than expected, showing that factories are producing less, and using less of their potential. The Producer Price Index came in at a whopping +1.4% (compared to an almost equally whopping +1.0% that was expected), however the Core PPI, which strips out the cost of food and energy, came in as expected at +0.2%. Housing Starts came in lower than expected, while new Housing Permits came in slightly higher than anticipated. U.S. Crude Oil Inventories came in a lot less than the market was looking for, proving that there is still a huge demand for oil, even at these loftier price levels. The Philadelphia Fed Index, which shows how the economy is doing on the east coast, came in worse than anticipated, and first time Unemployment Claims came in higher than expected. Finally, the Index of Leading Economic Indicators (a possible gauge of future economic growth) came in slightly higher than expected.
All in all, the week's reports were negative on the economy, while at the same time being inflationary. As you will notice on the chart below, the market started out positively on Monday, but then finished lower. Tuesday and Wednesday, the market rallied and we saw rates fall. Then on Thursday and Friday the market was a bit volatile, but ended both days fairly even. Sometimes even is not so bad!
This week, we will see a lot of news out on the economy AND we have a Federal Reserve meeting. First the news:
Tuesday - Consumer Confidence - Will we see any improvement of how John and Jane Q. Public feel about the state of the economy? With gas approaching $4.25 per gallon, this number will probably be steady to lower. (Moderate impact on mortgage rates)
Tuesday - The Federal Reserve begins the first day of its two day meeting on determining the direction of short term interest rates
Wednesday - Durable Goods Orders - The purchase of big ticket items, meant to last at least 3 years (Moderate)
Wednesday - New Home Sales - Are people purchasing the homes that those builders are starting? (Moderate)
Wednesday - Crude Oil Inventories - At what level will consumers be turned off by the price of a gallon of gas? (Moderate)
Wednesday - 1:15pm, CST - The Fed will announce their decision on interest rates. Most market players are not expecting any movement at this time, but are anticipating that the Feds next move will be up instead of down. Everyone will be paying close attention to what the Fed says in the statement that it releases with its decision. (HIGH)
Thursday - First time Unemployment claims (Moderate)
Thursday - Existing Home Sales (Moderate)
Thursday - 1st Quarter Gross Domestic Product (GDP) - Final revision of this number that showed the economy growing at an anemic 0.6% pace (Moderate)
Thursday - Chain Deflator - Inflation gauge released with the GDP number (Moderate)
Friday - Personal Income and Spending (Moderate)
Friday - Personal Consumption Expenditures (PCE) and Core PCE, excluding food and energy - This is the Fed's favorite gauge of inflation, and the markets watch it closely, and will definitely watch it closely this month to see if the Fed "got it right" on Wednesday (HIGH)
It could prove to be a very volatile week for mortgage rates and the stock market. In addition to the reports that are due out, the markets will be watching the price of crude oil and further developments with large banks and mortgage lenders.
If we see any larger movements either way, we will make you aware of them.
The chart above represents the price of certain mortgage bonds. Keep in mind that the price moves opposite rates, so on the chart up and green are good, while down and red are bad. You will notice that the market is stuck under a pretty strong level of resistance. It will take some very bond friendly news to make the bond break through this barrier.
Have a great week!
Jay Skwierawski
President
First Sterling Mortgage Services, LLC
737 North Michigan Avenue, #1900
Chicago, IL 60611
312.268.7601
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