Market Reports
A Mortgage update from Jay Skwierawski for the week of June 30
Hello Everybody!
Mortgage rates actually fell last week, partially on weak economic news, but mostly on a decline in the stock markets, which caused money to flow out of stocks and into bonds.
The "big" news events of the week were the Federal Reserve's Open Market Committee meeting, the continuing surge in the price of oil and the stock market teetering on a bear market. Last week, the Fed decided to leave interest rates alone at their two day meeting that ended on Wednesday. On the surface, this might seem like a good thing. But as far as mortgage rates are concerned, it really wasn't a good thing. You see, the Fed has quite a dilemma on its hands, with the economy performing sluggishly, at best, the housing market having its share of problems, consumer confidence continuing to drop and the cost of food and energy rising every day. The Fed decided to leave rates unchanged for now, but that could change as soon as their next meeting in August. When the Fed started to cut rates back in September, it was a great idea. The economy seemed headed into a slow period, and the Fed hoped that by lowering short terms interest rates, they could stimulate the economy and prevent a recession. With the continued string of cuts that have come since September comes a much weaker Dollar. And since oil is priced in U.S. Dollars, the decline in the Dollar has pushed oil prices through the roof, even with consumption in the U.S. decreasing. Prior to the Fed's first rate cut, oil was trading at a then staggeringly high $73 per barrel. After nine months of rate cuts, oil traded today over $143 per barrel, almost double. Since oil is involved in so much of what we purchase, prices have gone up on just about everything. What does this all have to do with mortgage rates? A stronger stance by the Fed against inflation, which would mean interest rate hikes ahead, would strengthen the Dollar, batter down high oil prices and cause Treasury Bond and mortgage rates to improve in turn, since inflation is the arch enemy of both. We'll find out what the Fed decides to do at their next meeting in August.
The price of oil continued its ascent into never before seen territory, and this morning it has traded over $143 per barrel, with many experts saying that we could see $175 per barrel before the end of summer. So, put that in your tank and burn it. Also, we saw the stock market drop so much that, barring a miraculous recovery today, the markets may experience their worst June since the depression.
Recapping the news that came out last week: We saw Consumer Confidence dip to its lowest level in decades. Durable Goods Orders stay unchanged for the month of May, New and Existing Home Sales come in slightly better than expected, Gross Domestic Product came in as expected, first time Unemployment Claims came in higher than expected, the Fed's favorite gauge of inflation - the PCE (Personal Consumption Expenditures) came in better than expected and Personal Income and Spending both came in better than expected, as the government's economic stimulus checks began to be received and spent in May.
The week ahead will be a short one for the markets, as the fourth of July holiday will cause the markets to close early on Thursday and be closed all day on Friday. But, that doesn't mean there won't be fireworks in the markets before the first fuse is lit at parks and lakefronts across the country. Here's what we can look forward to, in addition to news on the price of oil and the stock market:
Monday - The Chicago PMI has already been reported this morning, and has come in better than expected, but still showing a slowdown in the economy. (HIGH)
Tuesday - The Industrial Supply Manager's Index (HIGH)
Wednesday - U.S. Crude Oil Inventories (typically Moderate, but could be HIGH, given oil's recent rise)
Thursday - U.S. Payroll numbers, including the unemployment rate, jobs created or lost, average work week and hourly earnings (HIGH) Note: This report is usually released on the first Friday of the month, but is early this month due to the holiday.
Thursday - First time unemployment claims (Moderate)
Thursday - Industrial Supply Manager's Services Index (Moderate)
So, although it is going to be a short week, it will end with a bang, as the employment report is usually the "big event of the month" as far as the markets are concerned.
The chart above shows the price of mortgage bonds over the past three months, with the most recent activity on the right. You will notice a march higher last week after a rocky start on Monday. The trend, at least for now, seems to be for that march higher to continue. Only time will tell!
Have a great and safe Fourth of July, and I will keep you updated on any major developments over the week ahead!
Thank you!
Jay Skwierawski
President
First Sterling Mortgage Services, LLC
737 North Michigan Avenue, #1900
Chicago, IL 60611
312.268.7601
WE CLOSE ON TIME - EVERY TIME!
is a registered service mark of The Prudential Insurance Company of America. Equal Housing Opportunity. Midwest Realty Ventures LLC. All Rights Reserved.