Danny Salas

Archive for July, 2007

Chico, CA Interest Rates Market Report – Economic Influences – July 2nd, 2007

Businesses Are NOT purchasing…a sign???

Last week had very little economic information until after the News & Review went to print…then things got pretty cool.  Wednesday’s weaker than expected Durable Goods Orders Report fell by 2.8% in May.  This was the lowest level since January and shows us that businesses are not making as many purchases for machinery, equipment, and particularly airplanes. 

May showed 313,000 Initial Jobless Claims, which was right where experts expected the number to be and continued to show that we’re in a labor market that remains tight. 

Inflation Levels Looking Good

Finally, we hit below 2% on some inflation levels.  Friday’s highly anticipated Core Personal Consumption Expenditure Report came in at a cool 1.9% for the year-over-year rate.  Remember that the Fed’s desire has been to have the Core consumer inflation rate between 1% and 2%.  This really helped mortgage backed securities move upwardly (remember, when bonds move up, their yields -and interest rates- move down).  Unfortunately though, we still hit a very hard line of resistance.  This trend line has been falling downwardly for quite some time.  Since early May, actually.  So while we had had good news for interest rates lately, we still have not had enough information to help us break through this tough line…and it keeps falling. 

Fed Comments:  Very Cautious

Coupled with a very cautious statement from the Fed meeting, where the Federal Reserve Open Market Committee left the Fed Funds Rate untouched, at 5.25%  They did indicate that inflation is moderating somewhat, but that they are not convinced that it is completely under control.  Again, using fun phrases like this help to keep the Fed out of trouble.  Regardless as to how the market reacts to their comments…they are somewhat ambiguous, and therefore…never wrong…I guess.  Makes my statements a little more easy to write, too.  The Fed also mentioned that they expect an increase in economic activity, which would probably mean that they don’t expect to decrease the overnight rate any time in the near future.   So, the Core PCE Report was a truly welcome sight to see the very next morning after the Fed’s statement.  Apparently, the Fed is now watching the Headline Inflation Numbers.  These include food and energy…so you may be reading more about this in the near future. 

Bonds continue to trade in a tight area with that Falling Resistance Line at $98.79 and a level of support at $98.28.  With the Fourth of July Holiday coming and with Friday’s Jobs Report, we could see some volatility before next week’s issue.  Generally and holiday creates low trading volumes and leads to more volatility in the marketplace.    Monday’s close left bonds just above that $98.79 level.  Whether or not we’ll be able to stay above it will be fun to wait and see.  Bonds are trying to move higher…let’s hope that the sparks fly, the rockets glare, and the fireworks thrill with Friday’s Job Report and Independence week.  Happy Fourth everyone!  Until next week…