Last Week in Review

Bonds began the week trading lower due to inflation fears after crude shipments from Georgia were halted amid the Russian bombardment of the country. However, some poor economic reports (remember, bad economic news is bad for Stocks and typically causes money to flow from Stocks into Bonds)…including poor earnings reports from Macy’s and farm equipment maker Deere & Co….helped Bonds and home loan rates regain some of the early ground they had lost.

Bonds continued to rally in the latter part of the week despite the hotter than expected read on consumer inflation in the July Consumer Price Index (CPI) report. According to the index, consumer prices increased 5.6% over the last year, which is the biggest year-over-year increase since January 1991. However, Bonds shrugged off the bad inflation news and traded higher because this hot reading came during the time that oil prices spiked to $147 a barrel in the month of July. Since then, oil prices have dropped significantly and are now $113 a barrel, which left traders thinking that next month’s CPI reading may be tamer. And Bonds and home loan rates continued their rally on Friday in response to some tame inflation news within the Empire State Index Report.

While inflation has been a tough opponent for Bonds and home loan rates, the technical factor known as the 25-day Moving Average (a moving average is the average closing price of a financial instrument over a given time) has been an even tougher opponent of late. Bonds and home loan rates have attempted to improve past this level several times over the last few weeks, finally succeeding on Friday to end the week nearly unchanged from where they began.

Forecast for the Week

Tuesday is an especially important day to stay tuned to the markets as two reports…the wholesale inflation measuring Producer Price Index and the state of the housing market measuring Housing Starts and Building Permits Report…could impact the direction of Bonds and home loan rates.

Thursday is another important day to note as the Philadelphia Fed Report will be released. This monthly survey of manufacturing purchasing managers conducting business around the tri-state area of Pennsylvania, New Jersey, and Delaware is one of the most-watched manufacturing reports. If manufacturing is stronger than expected in this area, Stocks could move higher at the expense of Bonds and Home Loan Rates.

Remember when Bond prices move higher, home loan rates move lower…and vice versa. As you can see in the chart, Bonds and home loan rates were able to battle back and end the week near where they started. However, a new level of resistance at the 50-day Moving Average (seen as the solid Black Line) may have an affect on the direction of home loan rates. I will be watching to see whether Bonds and home loan rates can beat out their next opponent to reach even better levels.

Patrick Dunn, Westwood Mortgage Inc. & MMG Weekly
patrick@westwoodmortgage.com / http://www.certifiedplanning.com

This entry was posted on Monday, August 18th, 2008 at 3:48 pm and is filed under Monday Mortgage Update, Real Estate News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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