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/

“THERE IS NOTHING WRONG WITH CHANGE, AS LONG AS IT IS IN THE RIGHT DIRECTION.” ~ Winston Churchill. And there were some big changes indeed for Bonds and home loan rates last week - but not necessarily all in the “right direction”. For most of the week, Bond prices were pummeled lower, causing home loan rates to rise - and even after a Friday afternoon rally, home loan rates worsened by about .25% for the week overall.

One silver lining…some of the abuse that Bonds took was at the hands of somewhat positive economic news. Remember that positive or strong economic news tends to benefit Stocks, which in turn can pull money out of Bonds - which causes Bond prices to worsen and home loan rates to rise. So when news hit of a far better than forecast Retail Sales Report and much better than expected earnings reports from giants like Google, the financial markets responded by flowing money over into Stocks, and right out of Bonds, causing home loan rates to rise.

Also hurting Bonds was inflation chatter during speeches made by several Federal Reserve Presidents, who vocalized their concerns over the persistence of inflation in the current economy. Additionally, the Producer Price Index showed wholesale inflation to be climbing higher, thanks to record high oil prices and a seventeen-year high on food prices. Because inflation erodes the value of the fixed return provided by a Bond, the scent of inflation in the air always causes Bond prices to decline, and as a result, home loan rates will rise.

After last week’s barrage of economic news, the calendar will quiet down this coming week. However, we will get a good look at the housing market via the Existing Home Sales Report on Wednesday, and the New Home Sales Report on Thursday - as well as a read on Durable Goods Orders.

What are those “durable goods” anyways? Simply put, they are items that are durable, or made to last longer than three years, such as cars, furniture, electronics, appliances, business equipment, games, cameras, etc. This report shows a good measure of consumer and business consumption and buying behavior, and depending on the health of the report, could bring some activity to the volatile financial markets.

As you can see in the chart, Bond prices ended the week with a move higher from a “floor of support” at the 200-day Moving Average…but are now headed back towards an overhead “ceiling of resistance” which could stop their progress higher. Remember that when Bond prices move higher, home loan rates move lower…and vice versa. If the news of the coming week isn’t Bond-friendly enough to help them bash their way through the overhead ceiling, Bond prices and home loan rates may worsen once again.

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

“I KNEW THE RECORD WOULD STAND UNTIL IT WAS BROKEN.” ~ Yogi Berra

A record was broken on the job front last Friday as the Labor Department reported a much worse than expected loss of 80,000 jobs in March - the greatest jobs loss reported in five years. In addition, revisions to both January and February’s Jobs Report delivered an additional loss of 67,000 jobs - that’s on top of the previously reported loss of 85,000 jobs for that two-month period.

And…the story might be even a bit gloomier than it already appears. The Labor Department uses a lot of averaging to help it come up with its numbers more quickly, but this practice can skew the current picture significantly. Think of it this way - and because it’s now baseball season, here’s a Baseball analogy - let’s say that mid-way through the season, a red-hot hitter with a batting average of 340 declines into a bad slump for several weeks. While he now can’t even hit a basketball thrown underhand to him, his average - while lower to 300 - is still very strong due to his previous hot performance. So someone looking at just the statistics may think that this batter is still absolutely terrific, but he is really someone the fans are booing as he approaches the plate. This is not very different from current numbers being reported by the Labor Department - previous averaging is likely causing an understating of the ACTUAL number of job losses…which somewhat masks how bad the job market really is.

This bleak Jobs Report greatly boosts the odds of not only a first-quarter recession, but perhaps a worse economic downturn than many economists fear. The Federal Reserve may respond to this increasing trend in job losses with additional interest rate cuts when they next meet to determine monetary policy on April 30 and June 25. As we’ve seen in the past though, such rate cuts do not translate into lower long-term rates for mortgages, so there is no better time than right now to refinance an existing mortgage or to structure a new one.

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