We will likely see another volatile day on Friday this week, with the delivery of two high impact reports with the potential to shake things up. Both set for release at 8:30am ET, we will see the wholesale inflation measuring Producer Price Index, as well as the Retail Sales Report. It will be important to see if the recent drop in oil prices has made an impact on either the cost to manufacture (PPI) or if it has invigorated retail purchases due to the savings in the cost to fuel vehicles.

Inflation at any level remains a strong concern, so the Producer Price Index will be of high interest to many, including the Fed. On the Retail Sales Report, remember that a strong Report would be good for the Stock market – which stands to reason, as it would indicate continued consumer confidence and dollars being poured into the economy. But stronger economic news and higher stock prices will likely worsen Bonds and home loan rates. The aforementioned 200-day Moving Average, seen below in blue, is an important threshold in determining the direction of home loan rates in the coming weeks. A convincing move above this line would be good news for Bonds. Let’s watch this closely, as it may represent some opportunities ahead.

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 managed to stay above the 200-Day Moving Average. I will be watching closely to see if Bonds and home loan rates can remain above this important level.

As you know, Treasury Secretary Paulson and Federal Housing Finance Agency Director Lockhart announced that “FHFA has placed Fannie Mae and Freddie Mac into conservatorship.”  The government (FHFA) will now be managing Fannie Mae and Freddie Mac for the foreseeable future.
 
A leading Washington DC firm provided an analysis of possible implications of this event. Here are some excerpts:
Overview:
To stabilize and to stimulate the housing and financial markets, the Federal Government is taking the following key steps.
- The GSEs will be allowed to increase their MBS portfolios through the end of 2009
- Treasury will be initiating a program to purchase GSE mortgage-backed securities (through December 31, 2009)
- Treasury has established a new secured lending credit facility which will be available to Fannie Mae, Freddie Mac and the Federal  Home Loan Banks
Short term impact:
For the housing industry, the short-term impact of the Government takeover appears to be positive.
- Mortgage rates should decline
- Liquidity should be increased
- Some housing experts feel house price may stabilize sooner and the level of further house price decline will be moderated as a result
Potential Impact:
- There could be a mini-refinance boom if the rate decline materializes.
- Hedging of servicing portfolios and pipeline problems will have to be addressed
- FHA appeared on the way to 50% market share later this year.  

More to come!

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

Last Week in Review  
 ”THE FIRST THING A HURDLER LEARNS…IS HOW TO FALL.” Tonie Campbell, 1988 Olympic Bronze Medalist, 110m Hurdles. And that’s a lesson Bonds and home loan rates have now learned, too. After finally leaping over a big technical hurdle called the 50-day Moving Average (a moving average is the average closing price of a financial instrument over a given time period) for the first time in weeks, Bonds and home loan rates then quickly plunged to some of their worst levels of the week.

So what happened? Bonds and home loan rates began the week facing a tough inflation hurdle, when the Producer Price Index (PPI) came in at the biggest year-over-year increase in 27 years. The Core PPI, which excludes volatile food and energy prices, also came in at the biggest year-over-year increase since 1991. However, the recent drop in oil prices kept the topic of inflation from being too high a hurdle for Bonds and home loan rates, and they managed to leap above the 50-Day Moving Average to some of their best levels in weeks on Wednesday.

However, the quick rise in Bond prices pushed them into “overbought” territory, which pulled the reins back on their momentum. Combining this with Friday’s news that the Korea Development Bank may be interested in acquiring Lehman Brothers – which added confidence to the financial sector, causing traders to move money from Bonds into Stocks – caused Bonds and home loan rates to stumble and end the week only slightly improved than where they began.

Forecast for the Week  
And if any improvement is in store, Bonds and home loan rates will again have several big obstacles to face this week. Right off the bat, we will get a read on the housing market as the Existing Home Sales report will be released on Monday followed by the New Home Sales Report on Tuesday. Also on Tuesday, the minutes of the Fed’s latest meeting will be released, and it will be important to see if any comments about inflation will cause Bonds and home loan rates to trip up.

And more hurdles still will follow in the last half of the week. On Thursday, the Gross Domestic Product (GDP) Report will be released and on Friday we will get the details on the Fed’s favorite gauge of inflation, the Core PCE (Personal Consumption Expenditure) data, from the Personal Income report. If either of these reports show inflation as a big barrier looming ahead, Bonds and home loan rates may not be able to regain any headway before the markets close early on Friday at 2:00 pm in advance of the Labor Day holiday weekend.

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 managed to stay above the 50-Day Moving Average line despite the losses they incurred. I will be watching to see if Bonds and home loan rates can surpass additional hurdles and regain some ground this week.

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

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

Several reports that are scheduled for this week could determine whether Bonds and home loan rates can manage a bigger comeback than they did last week. Definitely stay tuned for the Department of Labor’s big Jobs Report scheduled for Friday, which will show the number of jobs lost or gained in July. Remember: The Department of Labor averages their numbers, and part of each month’s report includes “revisions” to the several prior months’ numbers. A positive report could be good news for Stocks, but bad news for Bonds and home loan rates, so it will be especially important to see what numbers are posted on the “scoreboard.”

Also keep an eye on Thursday’s Gross Domestic Product (GDP) report from the Commerce Department. GDP is the broadest measure of economic activity…and since good economic news typically causes money to flow into Stocks and out of Bonds, this report will be important to watch. Remember when Bond prices move higher, home loan rates move lower…and vice versa. It will be important to see if this week’s news can help or hinder Bonds and home loan rates in their attempt to bounce back.

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

We could be in for another explosive week, as several reports will show the impact inflation continues to have on the economy. Tuesday will bring the wholesale inflation measuring Producer Price Index as well as the Retail Sales Report, which measures the total receipts of retail stores. Since these numbers reflect consumer spending patterns, this report will show how much of an impact inflation and high oil prices are having on consumer pocketbooks.

On Wednesday, the Consumer Price Index report will be released, and this widely-watched report will reveal the level of inflation at the consumer level since it shows how much more expensive goods and services are this month over last month. Also, on Wednesday, we’ll get to see the minutes of the Fed’s last Federal Open Market Committee meeting. These minutes could cause some sizzle in the markets especially if they give any indication of what the Fed will do about its benchmark rate, the Fed Funds Rate, at the next meeting.

Thursday we will see a read on the housing market via the Housing Starts and Building Permits Report. We’ll also learn how much of an impact inflation has had on manufacturing via the Philadelphia Fed Report, which is a monthly survey of manufacturing purchasing managers conducting business around the tri-state area of Pennsylvania, New Jersey, and Delaware.

Remember when Bond prices move higher, home loan rates move lower…and vice versa. The chart shows how the rally for Bonds and home loan rates fizzled late last week. And since inflation also tends to stop rallies for both Stocks and Bonds, I’ll be watching closely as always. If this week’s reports indicate inflation is heating up, this could cause Bond pricing and home loan rates to worsen in response.

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

There’s a holiday shortened week ahead, as the financial markets will be closed on Friday in observance of Independence Day. But…there could still be lots of action this week, particularly with the Department of Labor’s Jobs Report scheduled for Thursday, just ahead of the long weekend. A positive report could be good news for Stocks, but bad news for Bonds and home loan rates, so it will be especially important to watch all the fireworks that follow the headlines.

Remember when Bond prices move higher, home loan rates move lower…and vice versa. The chart below shows how the action in the Bond market improved last week, helping home loan rates to improve as well. So as always, I will be watching closely during the coming week.

If inflation continues to shake up the markets or if the news on employment is surprisingly good…the action for Bond prices and home loan rates could change direction and worsen.

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

The coming week is chock full of economic reports that will likely have a big influence on the financial markets. We start off on Tuesday with a report on Consumer Confidence, and also the beginning of Fed meetings which will culminate in a Rate Decision and Policy Statement on Wednesday afternoon at 2:15pm ET. It is widely believed that the Fed will keep the Fed Funds Rate at 2%…but what will be most interesting is the wording of their carefully crafted Policy Statement. If it gives hints of their intent to hike rates in the near future to help fight inflation, it could actually be good news for Bonds and home loan rates.

A look at sales numbers in the new and existing housing markets will come Wednesday and Thursday, and Friday will wrap up the week with a bang as the Fed’s favorite gauge of inflation, the Core PCE (Personal Consumption Expenditure) data will be released. Since this will be following the Fed’s announcement on Wednesday – will the Fed look smart if they’ve held rates steady, or perhaps come under criticism if the inflation numbers are super-heated? Could be a greasy few days for the Fed, so stay tuned.

Remember that when Bond pricing moves higher, home loan rates move lower – and then take a look at the chart. You can see how in recent days, Bonds have moved higher, but are now battling an overhead “ceiling” of technical resistance. If Bonds and home loan rates are to improve in the near future, it will take some very Bond-friendly news to help crash through the ceiling that has stopped progress in its tracks for the time being.

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

This coming week, one economic report in particular bears inflated significance…Friday’s release of the infamous monthly Jobs Report. It will reveal, among many other things, the number of jobs lost or gained during the month of May. Last month’s Jobs Report indicated that 20,000 jobs were lost in April, and while this was better than the expected job losses of 75,000, it is possible that the reported number understated the actual number of jobs lost, due to how the Department of Labor averages their count. And part of each month’s report is “revisions” to the several prior months’ numbers…which this could be quite a wild card for Bonds and home loan rates.

Last month’s Jobs Report, which was indeed more positive than expected, caused Bonds to fall a whopping 134bp in a matter of minutes, and home loan rates worsened quickly. Why? Because even though the news wasn’t great, it sure was better than anticipated…and this caused money to flow out of Bonds, and into Stocks…which caused Bond prices and home loan rates to worsen. This week’s Jobs Report could sure be another mover, and if the report or revisions indicate positive news on the jobs front, home loan rates will likely worsen in response.

Remember when Bond prices move higher, home loan rates move lower…and vice versa. And as you can see in the chart, Bonds moved lower for most of the week, and actually closed below an important technical level at the 200-day Moving Average. This is a very important level, as it can act as either a very strong floor of support helping Bond prices not to fall below it…or as an equally strong ceiling of resistance, preventing Bonds and home loan rates from improving above it. And with Bonds currently having fallen beneath it, I’ll be watching closely this week to see if Bonds have indeed fallen and can’t get up…or if they can break above that tough level later this week and help home loan rates improve.

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

After last week’s thin economic calendar, where Stock market action and technical factors had a big impact on Bonds and home loan rates, this coming week brings a much juicier economic report agenda.

Retail Sales for April will be reported on Tuesday, followed by Wednesday’s Consumer Price Index (CPI). This widely watched measure of consumer inflation will take special significance, now that the Fed has signaled their current rate cutting cycle may be at an end. On Thursday comes a read on the new construction housing market, with Housing Starts and Building Permits. We will have to see if these reports can keep Bonds above their 50- and 100-Day Moving Averages…as seen in the chart below. If the reports are economically weak or negative, Bond prices and home loan rates should hold their ground, and perhaps even find some improvement.

Remember when Bond prices move higher, home loan rates move lower…and vice versa. And right now, there’s an important story breaking that will be very important to stay tuned in to. Last Friday, oil prices reached a lofty $126 a barrel, and Goldman Sachs is forecasting that black gold could rise even higher, perhaps as high as $150 – $200 a barrel in the next twelve months. If they are right, the inflationary effects of high oil prices could pressure Bond prices to move lower, causing home loan rates to move higher. This will be a story to watch carefully in the days and months ahead.

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

“KNOWLEDGE IS POWER.” It’s a phrase used by many, and last week was an important one to be in the know, as Bonds and home loan rates were affected by many big newsmakers and market shakers. Bonds and home loan rates found some improvement in the early part of the week, leading into the Fed’s big announcement on Wednesday of another .25% cut to the Fed Funds Rate. Typically, Bonds and home loan rates react poorly to Fed cuts, due to the increase in economic activity that lower Fed rates can cause, which turns into higher inflation. However, the Fed’s Policy Statement hinted that the present rate-cutting cycle may be nearing an end. As a result, Bonds and home loan rates reacted favorably to the Fed’s action.

However, speaking of inflation, the Fed’s most favored measure of it – the Core Personal Consumption Expenditure Index – arrived on Thursday, showing core inflation at 2.1%, just a whisker above the Fed’s desired range for inflation of 1 to 2%. This read wasn’t great news for inflation-sensitive Bonds…but the resulting market action was nothing, compared to what happened when the Jobs Report arrived on Friday morning.

Talk about a real mover and shaker…the Jobs Report brought word of 20,000 jobs lost in April, which was better than market expectations of 75,000 jobs lost. Initially, Stocks rallied higher and Bonds worsened dramatically, as the headlines were so much better than had been anticipated. But when the details of the report were unpacked, showing prior months worsening revisions – as well as a sobering realization that 20,000 jobs lost is still lousy news – the markets quickly reversed direction, helping Bonds and home loan rates improve once again. Another ultra volatile week – and when the dust settled, home loan rates improved by about .125% overall.

Last week’s full economic news calendar led to some wild days, especially on Friday, as you can see in the chart. But this week’s economic calendar is significantly calmer, with only a few low to mid-impact reports in store, including the Institute of Supply Management (ISM) Report on Monday, Pending Home Sales on Wednesday, and Initial Jobless Claims on Thursday.

If the news of the week tends toward being negative for the economy, Stock prices may suffer in response, and money could flow right into Bonds, which would cause home loan rates to improve. Additionally, Stocks have been in rally mode lately, and might be due to take a breather. While the coming week’s economic reports aren’t expected to be movers and shakers like the headlines from last week, count on me to be keeping a close watch on the market and staying in the know on your behalf in this very volatile environment.

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