Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – July 17th, 2007

Watching the Subprime Loan Situation?

Well, last week I had indicated that Good ‘ole Ben Bernanke would be speaking out and that I would report about his comments, and how the market reacted, this week.  Well, when Ben spoke, mortgage backed securities…didn’t even react…they were too busy watching the stock market…how’s that for anti-climactic? 

Something that we should be watching is this whole subprime loan situation.  I’m sure you’ve been reading about it lately.  Well, some bond rating services from Standard & Poor’s and Moody’s are considering, or may actually be in the process of, lowering the credit ratings of Mortgaged-Backed Securities.  When a large amount of A-Paper Loans are pooled together and offered for sale, they generally are accompanied by some subprime loans as well.  So the entire pool could potentially be contaminated and this could bring the pricing for Mortgage Bonds to a more risky level.  This could hurt interest rates, in the future. 

We’ve really been having a difficult time breaking through the 25-day moving average.  If fact, we continue to bounce off of that level of resistance, and the trend line keeps moving lower…so rates keep moving a little higher, as that trend line lowers (remember, when Mortgage Backed Securities move lower, their yield moves higher, causing interest rates to move higher). 

Wal-Mart Staying Strong

Last week, WalMart reported a much stronger than expected 2.4% increase in their sales for June of 2007.  In the pits, on Wall Street, there is a common saying, “As goes WalMart…so goes Retail.”  So rates moved up on speculation that Retail Sales will be strong (based on WalMart’s reports).  Again, speculation moving our markets…I keep talking about this…but a funny thing happened…Retail Sales plunged -0,9% in June.  This was the lowest level reported since August of 2005.  Over and above that, previous numbers for April and May were revised lower.  This was a big surprise for the markets and we enjoyed a little breathing room.  Interestingly, the University of Michigan’s Preliminary Consumer Sentiment Index for July was reported at 92.4.  Much higher than the 85.5 that was expected.  What this means is that consumers weren’t spending too much money in June, but they felt as though their financial outlook for the future looked promising.  Go figure…now that’s optimism, hey?  

Some great news regarding foreign investment in our bonds!!! 

$126 Billion was invested in US Securities, when we only expected $72 Billion of foreign assistance.  Remember that we have been watching this VERY closely, as foreign investment has really helped keep our long term rates lower.  So this was very good news to see. 

The Producer Price Index (PPI) for June, was reported at -0.2%, lower than expectations, but the Core PPI rose 0.3%.  This was not good for interest rates, but the bigger news will have to wait until next week issue, as print time is hounding me.  Also, I’ll have to wait to comment on Ben Bernanke’s semi-annual monetary policy report to the House of Representatives Financial Services Committee.  Then he speaks to the Senate Banking Committee.  It will be interesting to see how the financial markets will react to the question and answer event.  Let’s hope that Bernanke can keep his comments on inflation at a level that the markets can cope with.  I’d hate to have another anti-climactic article…Until next week

This entry was posted on Tuesday, July 17th, 2007 at 5:32 pm and is filed under Chico Home Loans, Home Buying, Interest Rates, Weekly Market Report. 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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