Economic Roundup: Week of Sept 10th

September 11, 2012 by · Leave a Comment 

There were two big economic events scheduled last week, and they both produced large reactions in mortgage rates, but in opposite directions.  A new aid program in Europe caused mortgage rates to increase, while weaker than expected Employment data resulted in a substantial improvement in rates.  The net effect was a modest decline in mortgage rates for the week.

On Thursday, the European Central Bank (ECB) announced a new program to purchase short-term bonds of troubled countries.  Of note, the new program will be “unlimited” in size, and there will be conditions attached for countries which receive aid.  Investors were more willing to own riskier assets after the news, which helped stocks and hurt most bonds, includingUSmortgage-backed securities (MBS).

Friday’s release of the Employment report caused a swift improvement in mortgage rates, however.  Against a consensus forecast of 130K, the economy added just 96K jobs in August, and the data from prior months was revised lower by 41K.  The Unemployment Rate unexpectedly dropped to 8.1% from 8.3% last month, but this was also seen as a sign of weakness given its cause.  The decline was due to people leaving the labor force rather than people getting jobs.  In short, it was difficult to find any positive news in the report.  As a result, investors raised their expectations for quantitative easing (QE3) from the Fed, possibly as soon as the FOMC meeting next Thursday.  QE3 would likely involve Fed purchases of mortgage-backed securities (MBS), so mortgage rates improved following the news.

 The big story this week is Thursday’s Fed meeting.  Given the weak August Employment data, expectations are high that the Fed will announce additional monetary easing.  The most significant economic data 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.  CPI looks at the price change for those finished goods which are sold to consumers.  Retail Sales and Industrial Production also will be released on Friday.  Also worth noting, an important German court decision on the legality of ECB programs is expected on Wednesday.

Economic Roundup: Week of Sept 3

September 4, 2012 by · Leave a Comment 

While there was a full slate of economic data and Treasury auctions last week, investors were focused on a speech by Fed Chief Bernanke on Friday.  The resulting increase in expectations for future Fed action was positive for mortgage rates, which ended the week a little lower.

Bernanke did not commit to implementing any additional easing measures in his highly anticipated speech fromJackson Hole, but his comments caused investors to raise their expectations for a third round of Fed asset purchases (called quantitative easing or QE3).  Bernanke emphasized that a high jobless rate imposes large costs on the economy and left the door open for further easing.  QE3 would likely involve Fed purchases of mortgage-backed securities (MBS), so mortgage rates improved after his speech.  The possibility of additional monetary stimulus also caused stocks to rally on Friday.

 In addition, the housing sector data released last week continued to show improvement.  July Pending Home Sales increased 2% from June to the highest level since April 2010, which was shortly before the deadline for the homebuyer tax credit.  Pending Home Sales are a leading indicator of future housing market activity.  Also, all three major S&P Case-Shiller Home Price Indices ended the 2nd Qtr of 2012 with positive annual growth rates for the first time since the summer of 2010.  The national composite index was up 1.2% in the 2nd Qtr compared to the 2nd Qtr of 2011 and was 6.9% higher than in the 1st Qtr of this year.  In addition, the 20-city home price index increased 2.3% from May.  Although it sure feels like the numbers are improving inAtlanta as well so far in 2012,Atlanta,Detroit, andLas Vegas continued to have 2nd Qtr average home prices below their January 2000 levels.  Look forAtlanta to surge into positive numbers when 3rd Qtr figures come out.

The biggest economic event this week may be the European Central Bank (ECB) meeting on Thursday.  Investors will be looking for an announcement of additional aid measures for European countries with debt troubles.  The biggest US economic report this week will be the 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.  This month’s data will be a little extra special with the next Fed meeting on September 12.  Also, due out this week are the ISM Manufacturing and construction Spending on Tuesday, Productivity on Wednesday, and ISM Services on Thursday.

Economic Roundup: Week of Aug 27

August 29, 2012 by · Leave a Comment 

The Fed Minutes were the big story last week, raising expectations that the Fed will provide additional monetary stimulus soon. Mixed US economic data and minor news out of Europe had little impact. As a result, mortgage rates ended the week lower.

Released on Wednesday, the detailed Minutes from the August 1 Fed meeting stated that “many” members judged that further monetary easing would be called for in the near future unless economic growth shows a “substantial and sustainable” increase. In short, the Fed wants to see quicker improvement in the labor market and is prepared to act to help achieve this. Following the news, investors raised their expectations that the Fed will announce a third round of quantitative easing (QE3) soon, which would likely involve Fed purchases of mortgage-backed securities (MBS). As a result, demand for MBS increased, causing mortgage rates to improve.

One relatively bright spot for the economy this year has been improving housing market data, which was encouraging again last week. July Existing Home Sales rose 2% from June, while July New Home Sales increased 4% from June. Both measures were significantly higher than one year ago. With mortgage rates still at very low levels and home affordability very high, any pickup in the labor market could lead to increased activity in the housing market.

This week is going to be packed with economic news. Revisions to second quarter GDP, Pending Home Sales, and the Fed’s Beige Book are all due out on Wednesday. Core PCE inflation and Personal Income are due out on Thursday. Chicago PMI Manufacturing and Factory Orders are due out on Friday. Also, Fed Chief Bernanke will be speaking from Jackson Hole on Friday, and it’s possible that he will announce new Fed actions. In addition, EU officials will be meeting with Greek leaders to discuss the terms of the bailout package. There will be Treasury auctions on Tuesday, Wednesday, and Thursday as well.

Economic Roundup: Week of July 23rd

July 23, 2012 by · Leave a Comment 

More bad economic news last week was great news for mortgage rates. A higher likelihood for further Fed easing and increased concerns about Spain helped mortgage rates fall to record levels. I know this sounds like a broken record but rates are again at the low point of our generation!

Based on weaker than expected economic data and comments from Fed officials, investors have increased their expectations for a third round of quantitative easing (QE3) to boost the economy. The Retail Sales and manufacturing data released this week continued a string of recent reports reflecting slowing economic activity. Fed Chief Bernanke testified to Congress last Tuesday and Wednesday, acknowledging both a slow pace of economic growth and an unusually high level of uncertainty in the outlook. Investors believe that QE3 likely would consist of additional purchases of mortgage-backed securities (MBS) by the Fed. Since mortgage rates are largely determined by MBS prices, expectations for QE3 have been good for mortgage rates.

Many of the same issues experienced by Greece are now being seen in Spain. Spain passed additional austerity measures during the week, causing violent protests from the people affected by the spending cuts. Spain has the fourth largest economy in the euro zone, though, and its fate will have a much larger impact on the future of the European Union (EU) than Greece. The cost of a bailout for Spain would be enormous, but it’s hard to predict the severe consequences of a default by Spain. Investors reacted to the uncertainty by shifting to relatively safer assets, including U.S. Mortgage Backed Securities.

The biggest economic report this week will be Friday’s release of 2nd Qtr Gross Domestic Product (GDP), the broadest measure of economic growth. Before that, New Home Sales will come out on Wednesday. Durable Orders and Pending Home Sales will be released on Thursday. Consumer Sentiment is also scheduled for Friday. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.

Economic Roundup: Week of July 16, 2012

July 16, 2012 by · Leave a Comment 

Concerns about the pace of global economic growth dominated the financial news last week. Economic data released reflected slowing economic growth in nearly every region of the world. Debt problems in Europe continue to create a drag on economic activity. China’s GDP fell during the second quarter to the slowest pace since the beginning of 2009. Last week’s US Employment data showed that the US is not adding jobs quickly enough to bring down the Unemployment Rate. The bad news for the economy was positive for bond yields though and the result was a further fall in mortgage rates to basically the lowest level ever (again).

Also worth nothing, detailed minutes from the June 20th Fed meeting released on Wednesday disappointed investors hoping for signs of additional monetary stimulus in the near future. The Minutes did not reveal much support for a third round of quantitative easing (QE3) to boost the economy. Most Fed officials appear to believe that QE3 will be necessary only if US economic growth slows significantly. If we do get a new round of quantitative easing, investors expect it likely would consist of additional purchases of mortgage-backed securities (MBS) by the Fed. Since mortgage rates are largely determined by MBS prices, QE3 would be good for mortgage rates. One one hand, hopefully the economy will be strong enough that QE3 is not needed. On the other hand, if QE3 is needed, it would keep mortgage rates very low for another significant stretch of time.

Economic Roundup: June 29

June 29, 2012 by · Leave a Comment 

Events in Europe were the primary influence on mortgage rates again this week. The Supreme Court’s ruling in favor of Obama’s health care plan had little impact on rates. Mixed US economic data and weak Treasury auction demand also caused little reaction. Mortgage rates ended the week a little lower.

For most of the week, expectations for action from the European Union (EU) Summit were very low, but EU officials surprised investors on Friday with the announcement of a plan to recapitalize European banks and to help reduce borrowing costs for Spain and Italy. Essentially, Germany agreed to an increased level of aid in return for the eventual creation of a single supervisor for all banks in the EU. Details of the plan have not yet been worked out. After the news, investors shifted to riskier assets, partially reversing actions earlier in the week.

While most of the attention was on Europe and the Supreme Court, the housing data released this week was encouraging. May New Home Sales rose 8% from April to the highest level since April 2010 (see graph below), when the homebuyer tax credit was about to expire. May Pending Home Sales rose 6% from April, also to the highest level since April 2010. Record low mortgage rates and high affordability levels are helping the housing market!!

 The biggest economic report next 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. Factory Orders will come out on Tuesday. ISM Services and ADP Employment will be released on Thursday. Mortgage Markets will be closed on Wednesday in observance of July Fourth.

Economic Roundup: Week of June 18

June 18, 2012 by · Leave a Comment 

Now that the vote in Greece has taken place, attention is now turning to whether the new Greek President can form a coalition government. Odds seem to be improving that Greece will remain in the European Union but anything is still possible. The major concern is that if Greece were to leave the EU, it could open the door for other countries to follow which could have a destabilizing effect on economies around the world.

The situation in Greece and the other European countries is going to have a strong influence on the US Federal Reserve, which will release its next meeting announcement on Wednesday. With slow economic growth in the US, a prolonged period of economic weakness likely in Europe, and slowing growth in most emerging economies, the Fed may be more willing to provide additional stimulus. One of the stronger forms of stimulus would involve bond purchases, the possibility of which has already been favorable for mortgage rates. The Fed is divided over what to do, however, some Fed officials have expressed reluctance to ease further questioning the impact with interest rates already at such low levels. Fed Chief Bernanke has repeatedly stated that action by government leaders would be much more effective than monetary policy at this point. In any case, we are in a period of extremely high uncertainty, and historic events over the next several days could have a significant impact on mortgage rates.

Wednesday’s Federal Reserve Meeting followed by Fed member comments highlights the week. In addition, Housing Starts will be released on Tuesday and Existing Home Sales will come out on Thursday. Of greater importance, however, will be shakeout from the Greek and Egypt elections and whether these regions are stabilized as a result.

Economic Roundup: Week of June 11, 2012

June 14, 2012 by · Leave a Comment 

Following a large improvement in mortgage rates and a large decline in stocks two weeks ago, investors partially reversed direction last week. The European Central Bank (ECB) and the Fed were the main focus, providing a degree of comfort, and investors were a little more willing to take on risky assets. This was negative for bonds, however, and mortgage rates ended the week modestly above recent low levels.

 The high degree of uncertainty about the troubles in Europe and the pace of US and global economic growth remains a major influence on US mortgage rates. In general, the uncertainty causes investors to reduce risk, which supports low rates. In addition, it tends to produce a higher level of volatility, which was evident this week. Reports about potential actions by the ECB, the IMF, China, Greece, and Spanish banks all produced significant reactions, even though little of the news could be supported as more than speculation. There will be series of major events later in the month, including Greek elections, an EU summit, and a Fed meeting, so it is reasonable to expect that volatility will continue.

Highly anticipated statements from the President of the European Central Bank (ECB) and from Fed Chief Bernanke last week helped ease investor concerns a little. Neither the ECB nor the Fed is ready to provide additional stimulus right now, but they are open to further action if necessary. The ECB and the Fed have already taken extraordinary measures to ease the financial crisis. The leaders of both central banks pointed out that monetary policy alone will not be enough to solve all the problems. They suggested that decisive action by political leaders would be more effective than further central bank action at this point.

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. Retail Sales also will be released on Wednesday. Retail Sales account for about 70% of economic activity. Industrial Production, Consumer Sentiment, and Empire State will come out on Friday.

 

Economic Roundup: Week of May 28, 2012

May 29, 2012 by · Leave a Comment 

Mortgage Rates Remain Near Record Lows

Last week’s economic news was mixed but mostly as expected.  In addition, demand was close to average for the Treasury auctions.  Mortgage rates ended the week just a little higher but essentially still near all-time low levels.  Here are the main two reasons that rates continue to stay so low:

1.  The slow pace of economic growth.  Domestic economic news continues to be inconsistent and sluggish.  Weaker economic growth reduces inflationary pressures AND increases demand for safe assets, both of which help mortgage rates.

2.  The uncertainty in Europe.  Over half of the countries in Europe are going through major struggles and the possibility thatGreece will leave the European Union continues to grow.  Don’t look now but even emerging economies such asChina andBrazil are now showing signs of a slowdown, too.

Rates continue to be super low but a time will come where they will start moving up.  News of an improving global economy or a reduction in European political uncertainty will almost certainly cause rates to move higher.  The biggest questions are when and how quickly this will happen.

The one shining spot at the moment is housing.  The UShousing sector data released last week continued the trend of improvement seen over the last several months.  April Existing Home Sales rose 3% from March to an annual rate of 4.62 million units, which was very close to a two-year high.  The total inventory of available existing homes for sale rose 10% to a 6.6-month supply.  April New Home Sales also increased 3% from March.

Looking ahead this week, the biggest economic report 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.  In addition, Consumer Confidence will come out on Tuesday, Pending Home Sales on Wednesday, and revisions to first quarter GDP and Chicago PMI on Thursday.  The Core PCE price index, Personal Income, ISM Manufacturing, and Construction Spending will also be released on Friday.

Bad News in Greece is Good News for Mortgage Rates

May 21, 2012 by · Leave a Comment 

There continues to be a lot of economic focus onGreece.  Greek political leaders remain divided and have been unable to form a coalition government following recent elections.  There continues to be little support for the bailout package, which requires severe austerity measures, and it’s not clear what position a new government will take.  Statements from European Union (EU) officials suggest thatGreecemust comply with its austerity agreement to receive further aid.  Without aid,Greecelikely will be forced to leave the EU.  As a result, Fitch has again downgraded the debt ofGreece.

The turmoil in Greece has actually been positive for US mortgage rates.  The first reason why is that economic growth in the region has slowed, which reduces future inflationary pressures.  The second reason is that investors have responded to the uncertainty by shifting investments to relatively safer assets, including US mortgage-backed securities (MBS).  The economy of Greece is very small, but the increasing possibility that Greece will exit the EU calls into question the stability and the benefits of the monetary union, causing a wide range of problems outside of Greece.  Bond yields in other troubled European countries have risen, creating a further drag on economic growth.  People are beginning to withdraw their money from banks in these countries, increasing the risk of bank failures.  Europe‘s issues will not be resolved quickly and will continue to influence US markets for quite a while.

This is a busy week with Existing Home Sales to be released on Tuesday, New Home Sales on Wednesday, Durable Orders on Thursday, and Consumer Sentiment on Friday.  In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday and a G8 meeting over the weekend.  If the meeting results in an unexpected coordinated policy action to support Europe, it could impact US markets as well.  Mortgage markets will close early on Friday in observance of Memorial Day.

« Previous PageNext Page »