Market Reports
A Mortgage update from Jay Skwierawski for the week of February 8
Hello Everybody!
Interest rates rose slightly again last week, as bad news on the economy caused stocks to rally with the markets anticipating increased pressure on the Obama administration and the U.S. Senate to step up efforts to pass an economic stimulus package sooner rather than later. The stock market rally was at the expense of the U.S. Treasury and mortgage bond markets, since increased spending on the stimulus package will be funded by the sale of bonds, and rates may have to go up to attract investors into those bonds.
Here's a look at the economic reports that were reported last week:
Personal Income showed a decline in December, but not quite as much as expected, while Personal Spending was reported worse than expected. This was probably due to the fact that consumers are saving more in anticipation of further job cuts. The Federal Reserve's favorite measure of inflation - the PCE came in better than expected, leaving the rate of inflation well within the Fed's comfort level for inflation. Just a few weeks ago, the fear of inflation caused mortgage rates to reverse course after hitting historic low levels. But for now, prices have steadily declined in an environment with lower energy prices, which is actually deflationary. The Institute of Supply Management's Index (ISM) came in low, but not as low as expected. This caused stocks to improve from lower levels, as the stock market continues to treat bad news that is "not as bad as expected" as if it is good news. Odd! On Thursday, First Time Unemployment Claims came in at 626,000, much higher than estimates of 580,000 and the highest level in 26 years. Productivity in the 4th Quarter increased more than expected. The Bank of England cut their benchmark interest rate to 1%, its lowest level since being founded in 1694, some 315 years ago. Talk about historically low levels! Finally, on Friday the U.S. Labor Department released the jobs report, and the figures came in weaker than expected. 598,000 jobs were lost in January, worse than the anticipated 540,000 loss, and the worst number since December, 1974. In addition, another 66,000 jobs were lost as the November and December numbers were revised. The unemployment rate rose to 7.6%, higher than expected, and hourly earnings rose slightly more than expected. All in all, this report should have made the stock market sell off and the bond markets rally. Instead, the opposite happened, as stock traders likely looked at the report and realized that the government really has their back against the wall, and must do something, and fast, to stimulate the economy and create jobs. In addition, treasury and mortgage bonds typically rally on bad news, in anticipation that the bad news is going to force the Fed to lower rates. That's hard to do when rates are at or near 0% already!
This coming week will be a slow one for economic reports, but will probably be an active one for the stock and bond markets, as traders watch for news out of the U.S. Senate and House on passage of President Obama's stimulus package. They are committed to getting a bill onto the President's desk by the end of this week, in time for him to sign it in conjunction with the President's Day holiday a week from Monday. Here are the economic reports that we will see next week:
Wednesday - The U.S. Balance of Trade is expected to show a decline as a result of a further decline in the price of oil - (Moderate impact on rates)
Wednesday - Crude Oil Inventories will be watched to see if the slowing of our economy is causing less oil to be used, which will mean lower prices in the future
Thursday - First Time Unemployment Claims are expected to show a decrease off of record high levels (Moderate)
Thursday - Retail Sales will be watched to see if anybody is going to the mall anymore (HIGH)
Friday - The University of Michigan Consumer Sentiment Index is expected to show a slight increase (Moderate)
I will keep you posted on any developments in the economy and progress of the stimulus package, and how mortgage rates are being affected. In the mean time, 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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