Economic Roundup: Week of December 24, 2012

December 22, 2012 by · Leave a Comment 

The fiscal cliff talks were the primary influence on mortgage rates last week. As investor optimism for a deal rose and fell during the week, so did mortgage rates. For the week, mortgage rates ended just a little lower.

If no fiscal cliff deal is reached, the spending cuts and tax increases which will occur beginning January 1 are perceived as negative for stocks but positive for bonds.  As a result, when comments from political leaders at the beginning of the week hinted at progress, mortgage rates moved higher and stocks gained. The reverse took place later in the week and especially on Friday following the failure in the House to pass the “Plan B” fiscal cliff proposal. The fiscal cliff talks most likely will continue to have a major impact on mortgage rates until a deal is reached.

The housing sector data released this week was encouraging. November Existing Home Sales rose 6% to the highest level since November 2009. Total housing inventory of available existing homes declined 4% to the lowest level since September 2005. November Housing Starts declined 3%, but Building Permits increased 4% to the highest level since July 2008. The December NAHB Home Builder Confidence index rose for the eighth consecutive month to the highest level since April 2006.

Investors will be mostly focused on the fiscal cliff talks during Christmas week. It will be a light week for economic data. New Home Sales and Consumer Confidence will come out on Thursday. Chicago PMI Manufacturing and Pending Home Sales will be released on Friday. Mortgage markets will close early on Monday and will be closed on Tuesday.

Economic Roundup: Week of December 17, 2012

December 17, 2012 by · Leave a Comment 

With little progress on the fiscal cliff talks and few surprises with last week’s economic data, the Fed meeting was last week’s big story.

The Fed announcement contained two major policy changes. The first, which was widely expected, is that the Fed will purchase $45 billion per month of long-term Treasury securities beginning at the start of 2013 to replace the Operation Twist program which expires at the end of this year. This will be in addition to the $40 billion of mortgage-backed securities (MBS) that the Fed now purchases monthly. The second change from the Fed was not expected. For the first time, the Fed announced that it will keep the fed funds rate at very low levels until certain economic targets are reached. Specifically, the fed funds rate will remain low until unemployment falls below 6.5% and inflation tops 2.5%.

Despite four years of extraordinary levels of Fed stimulus, the economic data released last week revealed that inflation is not a problem right now. Last week’s data showed that Core CPI, the most widely followed measure of inflation, was only 1.9%. The concern for investors after the Fed statement is that the Fed appears to be willing to tolerate a higher level of inflation in its efforts to boost the economy, and inflation is not good for mortgage rates.

This week, the fiscal cliff discussions will continue to dominate the US economic news. Beyond that, Housing Starts will be released on Wednesday. Existing Home Sales, Philly Fed, and the final revisions to third quarter GDP will come out on Thursday. Personal Income and Core PCE inflation will be released on Friday. Empire State, Consumer Sentiment, and Leading Indicators will round out the schedule. In addition, there will be Treasury auctions on Monday, Tuesday, and Wednesday.

Economic Roundup: Week of December 10, 2012

December 10, 2012 by · Leave a Comment 

Friday’s Employment data was stronger than expected. Against a consensus forecast of 90K, the economy added 146K jobs in November. Expected to increase from 7.9% to 8.0%, the Unemployment Rate decreased to 7.7%, the lowest level since December 2008. The decline was mostly due to workers leaving the labor force, however, rather than job gains. Overall, investors feared weaker results, and the news was favorable for stocks but had little effect on mortgage rates.

Once again, investors mostly remained on the sidelines waiting for progress on the fiscal cliff talks and the European debt troubles. Headlines in these areas, along with Friday’s Employment report, caused daily volatility, but mortgage rates ended the week with little change.

The last few weeks in December are traditionally a period marked by larger than usual price movements, due to thin trading volume. Usually the flow of news also winds down toward the end of the year. This year, however, there remain several major events which likely will have a significant impact on mortgage rates over the next few weeks, including a Fed meeting, the fiscal cliff talks, and deadlines on the Greek bailout. While there is no way to know what net effect these events will have on mortgage rates, it is reasonable to expect a high level of volatility.

The big story this week will be Wednesday’s Fed meeting. In particular, investors will be looking to see if the Fed will replace a Treasury bond purchase program which is due to expire at the end of the year. The most significant economic data this week will be the monthly inflation reports. The Producer Price Index (PPI) focuses on the increase in prices of “intermediate” goods used by companies to produce finished products and will come out on Thursday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Friday. In addition, Retail Sales will be released on Thursday and Industrial Production on Friday. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday as well.

Economic Roundup: Week of November 19, 2012

November 19, 2012 by · Leave a Comment 

There was little market moving news for mortgage rates over the last week. Little apparent progress was seen regarding the US fiscal cliff or the debt troubles in Europe. Since it’s extremely difficult to estimate the impact of Hurricane Sandy, investors did not give much weight to the US economic data released last week. As a result, mortgage rates ended the week unchanged.

Investors are operating with a high degree of uncertainty these days. Many hoped that after the election political leaders would provide clear signs that a compromise could be reached to resolve the upcoming fiscal cliff. If no action is taken, a series of spending cuts and tax increases will occur at the end of the year, which likely will result in a sharp slowdown in US economic growth. In general, investors have reacted to the uncertainty by shifting from riskier assets such as stocks to safer assets like mortgage-backed securities (MBS). This has led to mortgage rates pushing lower over the last few weeks. If a political compromise is reached, expect this flight to safety to reverse, investors to sell bonds, and mortgage rates to go back up.

The situation in Europe is also a source of frustration for investors. It’s clear from the economic data that growth in the region is slowing, even in the stronger countries such as Germany. The big question is what actions will be taken to address the debt troubles. European officials remain divided about releasing additional aid to Greece. Spanish leaders have not decided whether they will ask for assistance from the European Union (EU) bailout programs. In short, while economic conditions continue to get worse, there has been little progress in the conflict between the troubled European countries which need help and the stronger countries which will have to pay the bill. No clear resolution seems in sight, so expect market volatility related to this area.

This week will be a light one for economic data. Existing Home Sales will be released today, Housing Starts on Tuesday, and Consumer Sentiment, Leading Indicators, and Jobless Claims all on Wednesday. Mortgage markets will be closed on Thursday and will close early on Friday in observance of Thanksgiving.

Economic Roundup: Week of November 12, 2012

November 13, 2012 by · Leave a Comment 

Nearly all of the news out of Europe over the last week has been negative. European Union (EU) forecasts for economic growth for the next two years were downgraded more than expected, and EU officials warned of greater downside risks. In addition, German economic growth data fell short of consensus forecasts. Greek leaders passed a series of austerity measures required to receive additional aid, but widespread riots and protests took place during the vote. Concerns about Europe have caused investors to shift funds to safer assets, including US mortgage-backed securities (MBS), and this has been favorable for mortgage rates.

The most significant economic data this week will be the monthly inflation reports. The Producer Price Index (PPI) focuses on the increase in prices of “intermediate” goods used by companies to produce finished products and will come out on Wednesday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Thursday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, Retail Sales will be released on Wednesday, along with the detailed FOMC Minutes from the October 24 Fed meeting. Retail Sales account for about 70% of economic activity. Industrial Production will come out on Friday as well. Investors also will be waiting for news about whether Greece will receive its next scheduled round of European aid.

Economic Roundup: Week of November 5, 2012

November 5, 2012 by · Leave a Comment 

 

Mortgage-backed securities trading handled the issues caused by Hurricane Sandy without any major disruptions. Stronger than expected economic data also had little impact, and mortgage rates ended the week with little change.

Friday’s Employment report showed that the economy added roughly twice as many jobs as expected (including revisions). Against a consensus forecast of 125K, the economy added 171K jobs in October, and the data from prior months was revised higher by 84K. The Unemployment Rate, however, increased from 7.8% to 7.9%mostly due to an increase in the size of the labor force. Overall, the report was encouraging in most areas. Of note, the collection period for the October data ended before Hurricane Sandy hit, so next month’s report will reflect the storm’s impact.

The Unemployment Rate is determined in a separate survey and is based on two factors, the number of jobs and the number of people in the labor force. According to this survey, the economy added a whopping 410K jobs, and the labor force increased by an even larger 578K people. Clearly, strong growth in the number of jobs is great news for the economy. A growing labor force is also positive as it reflects increased optimism about finding a job, but it leads to a higher percentage of people classified as unemployed.

The most significant economic data this week will be today’s ISM Services index. The Trade Balance will also come out on Thursday and Import Prices and Consumer Sentiment on Friday. Of course,Tuesday’s election will dominate the news headlines this week. There will be Treasury auctions on Tuesday, Wednesday, and Thursday as well.

Economic Roundup: Week of October 29, 2012

October 30, 2012 by · Leave a Comment 

In a week packed with a Fed meeting, significant economic data, and Treasury auctions, there were no major surprises last week.  European events, often a source of market moving headlines, also had little impact.  As a result, mortgage rates ended the week slightly lower.

After the Federal Reserve’s blockbuster announcement for a 3rd round of quantitative easing at its last meeting, investors were anticipating no policy changes at last week’s Fed meeting.  As expected, the Fed’s statement that the economy is growing only “modestly” was very similar to last month’s statement and supportive of the current bond buying program known as Quantitative Easing 3 (QE3).

Friday’s release of third quarter Gross Domestic Product (GDP), the broadest measure of economic activity, increased at a 2.0% annual rate, slightly above the consensus forecast of 1.9%, and up from 1.3% in the 2nd quarter.  Many economists feel that a 2.0% growth rate is generally consistent with a steady labor market, but that a faster pace is necessary to see significant improvement in the level of employment.  A primary reason for the loose Fed policy is to help boost economic growth and create new jobs more quickly.

Also last week, Consumer Sentiment rose to the highest level since 2007 , oil prices declined to the lowest level since the middle of July , and New Home Sales increased to the highest level since April 2010 .

The biggestUSeconomic report this week will be the important Employment data on Friday.  As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month.  Before the employment data, Personal Income and Core PCE inflation will come out today, Chicago PMI Manufacturing on Wednesday, and Productivity, ISM Manufacturing, and Construction Spending on Thursday.  Consumer Confidence and Factory Orders will round out a busy schedule.

Economic Roundup: Week of October 9, 2012

October 10, 2012 by · Leave a Comment 

An improving US economic outlook and increased optimism about Europe were unfavorable influences on mortgage rates over the last week. Fed purchases of mortgage-backed securities (MBS) under QE3 helped offset the losses, though. As a result, after several weeks of declines, mortgage rates ended the week just slightly higher.

Friday’s Employment report was the big news last week. Against a consensus forecast of 120K, the economy added 114K jobs in September, but the data from prior months was revised higher by 86K. The Unemployment Rate unexpectedly dropped to 7.8%, the lowest level since January 2009, from 8.1% last month. Average Hourly Earnings, an indicator of wage growth, increased moderately from August. The September report exceeded expectations. This increases future inflationary pressures, which is negative for mortgage rates.

The results for the change in the number of jobs and for the Unemployment Rate are derived from different pools of data, and sometimes the two sources show wide discrepancies in a particular month. The Unemployment Rate is based on a survey of a small sample of households, and it can be extremely volatile, while the Payrolls data is based on information collected from businesses and tends to be more precise. This month, the household survey showed a gain of 783K jobs, which was the highest level since 1983, and far above the increase seen in the Payrolls data. Over longer periods, the two sources generally show similar results, but not necessarily in the short-term.

This week, the Fed’s Beige Book will be released on Wednesday. Import Prices and the Trade Balance will come out on Thursday. The Producer Price Index (PPI) focuses on the increase in prices of “intermediate” goods used by companies to produce finished products and will come out on Friday, along with Consumer Sentiment. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.

Econoic Roundup: Week of Oct 1, 2012

October 1, 2012 by · Leave a Comment 

It was another good week for mortgage rates. Concerns about the level of global economic growth and about the progress of reforms in Europe were favorable for mortgage rates last week.  Nearly all of the major economic data released last week reflected slower economic growth.

In the US, GDP, Durable Orders, and Chicago PMI manufacturing were all significantly weaker than expected. The news was similar in Germany and Japan. It was reported that China is considering another round of stimulus to combat slowing economic growth. Weaker growth reduces future inflationary pressures, which is positive for mortgage rates.

The uncertainty in Europe increased last week as protests in Spain and Greece highlighted the resistance to austerity measures in troubled countries. Spanish officials released a 2013 budget this week which included significant spending cuts and riots resulted. Measurement of the progress of reforms in Greece by international inspectors was postponed until after the November 6 US elections. In short, investors are still uncertain that unpopular austerity measures will be put in place by political leaders in troubled countries. The result is a shift to relatively safer assets, which also is positive for mortgage rates.

The biggest US economic report this week will be the important Employment data on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Before the employment data, ISM Manufacturing and Construction Spending will be released on Monday. ISM Services will come out on Wednesday. The detailed Minutes from the September 13 Fed meeting will be released on Thursday. News from Europe, particularly Spain, is likely to influence US mortgage markets as well.

Economic Roundup: Week of September 24, 2012

September 25, 2012 by · Leave a Comment 

On Wednesday, the Bank of Japan announced that it will increase its level of monetary stimulus, following similar recent moves by the Federal Reserve and the European Central Bank. The goal of the central banks is to boost economic growth and to reduce joblessness. The primary tool used by the central banks is bond purchases. The increased demand for bonds, including US mortgage-backed securities (MBS), from central bank purchases has helped push mortgage rates even lower.

The housing data released last week continued to show improvement. August Existing Home Sales rose 8% from July to the highest level since May 2010. August Housing Starts increased 2% from July as shown in graph below, and Building Permits for single-family homes rose to the highest level since March 2010. The September NAHB Home Builders confidence index rose for the fifth straight month to the highest level since June 2006.

This week, New Home Sales will be released on Wednesday. The final revisions to second quarter GDP, Durable Orders, and Pending Home Sales will come out on Thursday. Personal Income, Core PCE inflation, and Chicago PMI manufacturing will be released on Friday. Consumer Confidence and Consumer Sentiment will round out the busy schedule. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.

Next Page »