Monday Market Watch

   Market Recacp

 

The main story this week was the important monthly Employment report, which showed that wage inflation remains low. The European Central Bank (ECB) made no change in policy and had little impact on US markets. After a quiet four days, Friday's Employment data caused mortgage rates to improve and end the week a little lower.

Against a consensus forecast of 235K, the economy added 214K jobs in October. Revisions to prior months added 31K jobs. The economy has added an average of about 220K jobs per month so far this year, which is the fastest pace in over ten years. The Unemployment Rate declined to 5.8%, the lowest level since July 2008. Average Hourly Earnings, an indication of wage increases, were just 2.0% higher than one year ago. Bottom line, the job gains were roughly in line with expectations, but the low level of wage inflation was favorable for mortgage rates.

The results of this week's elections were largely as expected with the Republicans gaining control of the Senate and adding to their majority in the House. There was little immediate market reaction. So, will a Congress lead by the GOP mean that changes are coming for the mortgage market? The general belief is that there will be no significant changes any time soon, and probably not before the next Presidential election. The continuing conservatorship of Fannie Mae and Freddie Mac is the biggest industry issue Congress needs to address, but the complexity of any substantive reform and the significance of Fannie and Freddie to the housing market make this a very difficult issue.

Next week will be a light one for economic events. The JOLTS report, measuring job openings and labor turnover rates, will come out on Thursday. Retail Sales, which account for roughly 70% of economic activity, will be released on Friday. There will be Treasury auctions on Monday, Wednesday, and Thursday. Mortgage markets will 
be closed on Tuesday in observance of Veterans Day.






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Monday Market Update

Global central banks continued to add monetary stimulus this week, which was favorable for US bonds. The economic data was roughly neutral. As a result, mortgage rates ended the week a little lower.

On Wednesday, the Bank of Japan (BOJ) announced that it will increase its level of monetary stimulus, following similar recent moves by the Fed and the European Central Bank (ECB). The goal of the central banks is to boost economic growth and to reduce joblessness. The primary tool used by the central banks is bond purchases. The increased demand for bonds, including US mortgage-backed securities (MBS), from central bank purchases has helped push mortgage rates lower.

The housing data released this week continued to show improvement in the sector. August Existing Home Sales rose 8% from July to the highest level since May 2010. August Housing Starts increased 2% from July, and Building Permits for single-family homes rose to the highest level since March 2010. The September NAHB Home Builders confidence index rose for the fifth straight month to the highest level since June 2006.

Next week, New Home Sales will be released on Wednesday. The final revisions to second quarter GDP, Durable Orders, and Pending Home Sales will come out on Thursday. Personal Income, Core PCE inflation, and Chicago PMI manufacturing will be released on Friday. Consumer Confidence and Consumer Sentiment will round out the schedule. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.

Copyright @ 2012 MBSQuoteline

Market Update :: More Stimulus Soon?

The Fed Minutes were the big story this week, raising expectations that the Fed will provide additional monetary stimulus soon. Mixed US economic data and minor news out of Europe had little impact. As a result, mortgage rates ended the week lower.

Released on Wednesday, the detailed Minutes from the August 1 Fed meeting stated that "many" members judged that further monetary easing would be called for in the near future unless economic growth shows a "substantial and sustainable" increase. In short, the Fed wants to see quicker improvement in the labor market and is prepared to act to help achieve this. Following the news, investors raised their expectations that the Fed will announce a third round of quantitative easing (QE3) soon, which would likely involve Fed purchases of mortgage-backed securities (MBS). As a result, demand for MBS increased, causing mortgage rates to improve.

One relatively bright spot for the economy this year has been improving housing market data, which was encouraging again this week. July Existing Home Sales rose 2% from June, while July New Home Sales increased 4% from June. Both measures were significantly higher than one year ago. With mortgage rates still at very low levels and home affordability very high, any pickup in the labor market could lead to increased activity in the housing market.

Next week will be packed with economic news. Revisions to second quarter GDP, Pending Home Sales, and the Fed's Beige Book will come out on Wednesday. Core PCE inflation and Personal Income will be released on Thursday. Chicago PMI Manufacturing and Factory Orders will come out on Friday. In addition, Fed Chief Bernanke will be speaking from Jackson Hole on Friday, and it's possible that he will announce new Fed actions. EU officials will be meeting with Greek leaders to discuss the terms of the bailout package. There will be Treasury auctions on Tuesday, Wednesday, and Thursday.

Monday Market Update

Central Bank the Monday Market Update

While last week was packed with highly anticipated central bank announcements and significant economic data, there was no major economic news this week. As a result, both mortgage rates and the stock market ended the week with little change.

The pace of global economic growth is one primary influence for mortgage rates right now. Slower growth in the US, Europe, China, and most other regions has reduced inflationary pressures and supported low mortgage rates. Last week's stronger than expected Employment report and improving housing sector data, however, has raised hopes that the US will lead the rest of the world back to at least average levels of economic growth. A full slate of economic reports next week will help investors determine if the trend will continue.

While there were few notable headlines this week, news in Europe will continue to impact US mortgage rates in coming months. Weaker European countries are seeking quick relief for their debt troubles, which are close to unsustainable levels. The stronger countries such as Germany, though, are reluctant to pay the price for aid without guarantees about longer term reforms and greater central authority. It's still not certain that the European Union (EU) will remain intact. Both scheduled events and unexpected news almost certainly will have a significant effect on US financial markets for quite a while.

The most significant economic data next week will be the monthly inflation reports. The Producer Price Index (PPI) focuses on the increase in prices of "intermediate" goods used by companies to produce finished products and will come out on Tuesday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Wednesday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, Retail Sales will be released on Tuesday. Retail Sales account for about 70% of economic activity. Industrial Production will come out on Wednesday. Housing Starts will be released on Thursday. Consumer Sentiment, Leading Indicators, Philly Fed, and Empire State will round out a busy schedule.

Stay tuned for more Market News and for Housing Stats released on Thursday.

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