Market Reports
A Mortgage Update from Jay Skwierawski for the Week of November 16
Hello Everybody!
Mortgage rates rose slightly this week, even in the face of bad economic news. Typically when there is bad news out on the economy, like Friday's retail sales report showing a drop of a much worse than expected 2.8 percent, we would see mortgage rates go down. Unfortunately, these aren't typical times. Everyday it seems like the stock market is looking for a reason to rally or sell-off. On Wednesday, we saw the Dow Jones Industrial Average drop over 400 points. This was followed through on Thursday with a rally, and the DJIA finished up over 500 points. There was cause for celebration on Thursday, because prior to going up, the markets tested its lows reached in October. That is important, and often times is a sign of a sustainable rally. Unfortunately, the rally didn't continue on Friday, and the DJIA closed down over 300 points.
It was a fairly quiet week on the economic newsfront. Let's take a look at what came out:
The market was closed on Tuesday for the Veteran's Day Holiday. On Wednesday, Treasury Secretary Paulson announced that the U.S. Treasury was changing the Bailout Plan. Instead of purchasing bad mortgages, as was the original plan, the Treasury is going to use the money in other ways, such as investing in banks so those banks, with their increased capital, will feel better about lending money out. Unfortunately, we haven't really seen much evidence of this happening so far. Chances are we will also see some type of bone thrown to the auto industry to try to prevent one of the big three (most likely GM) automakers from going under. If GM were to go out of business, it is estimated that over 2-1/2 million people would lose their jobs in the auto and related industries. That's like everybody in the city of Chicago losing their jobs. Bad thing. On Thursday, it was reported that first time claims for unemployment jumped to 516,000, far worse than the 479,000 expected. At the same time, continuing claims for unemployment reached 3.89 Million, the highest number in 25 years. The trade balance improved, as the cost of oil continues to fall, and it does some whacky things to numbers. Today, as I mentioned earlier, U.S. Retail Sales were reported to have fallen 2.8 percent, much worse than the 2.1 percent drop that was anticipated, and the worst showing in the 16 year history of the retail sales report. It wasn't all doom and gloom this week, as consumer confidence rose higher than expected, probably getting a little bit of post election and lower gas prices bounce! Also, today in Germany, Fed Chairman Bernanke said that the central bankers worldwide stand ready to do whatever it takes to get the credit markets working again. This weekend, there is a special meeting of world leaders. During this G20 meeting, world leaders will attempt to lay groundwork on broad reforms to the world's financial systems.
This week's light menu of economic reports will be followed up next week by a whole slew of important, market moving reports, including:
Monday - Empire States Index - view of the economy from the New York area - Moderate impact on rates
Monday - U.S. Factory Production - are factories producing, or have they cut back? - Moderate
Monday - Capacity Utilization - are factories cutting back and trying to produce more with less? - Moderate
Tuesday - Producer Price Index (PPI) - The PPI is expected to show a drop of 1.5 percent, as a result of the drop in oil prices - Moderate
Tuesday - Core PPI - This less volatile index shows wholesale costs, excluding food and energy - Moderate
Wednesday - New Housing Starts and Building Permits are both expected to show a decline from last month - Moderate
Wednesday - Consumer Price Index (CPI) - Inflation at the consumer level is expected to show a "lower oil price induced" decline - HIGH
Wednesday - Core CPI - Shows inflation at the consumer level, less food and energy costs - HIGH
Thursday - Philadelphia Fed Index is expected to show a decline in business activity in the Philadelphia area - HIGH
Thursday - Initial Jobless Claims - the large increase in first time claims this week was ignored by the stock market as being "old news" - Moderate
Thursday - Index of Leading Economic Indicators - a predictor of the economy in the future, which is often inaccurate, especially lately - Low
Add in the results of the G20 meeting, the release of the minutes from the last Federal Reserve Meeting and whatever else is thrown at us, and it could make for an interesting week!
Above is a chart of mortgage bond prices for the past 90 days, with the most recent days on the right side. Remember that the price of bonds moves opposite the rate, so on this chart up and green are good, while down and red are bad.
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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