Danny Salas

Archive for October, 2007

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

Foreign Appetite Helps Rates...But 200-Day MA Too Strong

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A lot of boring statistics to report on this week, so let’s get right in there and attempt to make this interesting.  Durable Goods was reported at -4.9%.  This should be good for bonds, but we’re stuck on the 200-day moving average and bonds are afraid to go either way until Friday’s Job Report is released.  Bonds have touched this level of pricing six of the last seven days.  Gross Domestic Product (GDP) indicated that the US economy is growing at a quick-paced 3.8% rate.  Initial Jobless Claims was reported at 298,000, which was far below expectations.  We’ll have to see if this is setting the stage for Friday’s Jobs Numbers. 

New Home Sales for August was at 795,000.  We expected 830,000 and the inventory of unsold New Homes rose to 8.2 months.  This was a weak report. 

STILL, Foreign Appetite for our bonds…Wow!?

Last week we mentioned that we would be waiting on the news of the Core Personal Consumption Expenditure Index (Core PCE).  This is the Federal Reserves favorite gauge on inflation.  The report came in at expectations, however, the more closely watched year-over-year Core rate was at 1.8%.  This has steadily been declining on a monthly basis.  And, since the Fed wants inflation levels to remain between 1 and 2%, This; coupled with the fact that this last week, two days of US Treasury auctions went quite well.  $18 Billion in Two-year Notes as well as $13 Billion in Five-year Notes!  Foreign appetite for our Bonds was quite strong, and if you remember from previous articles, this is a HUGE factor keeping our interest rates low. 

Interestingly, the Personal Income and Spending report showed that consumers are still willing to spend, spend, spend.  We had the highest monthly growth rate in spending, in three years.  Auto Sales Incentives played a large part to the increase. 

More Subprime Woes…Watch This!!!

We had some more Sub-Prime Mortgage concerns enter the news again, as Citigroup Bank forecasted a significant decline in third-quarter profit. 

So, until Friday’s Jobs Numbers, we feel as though interest rates will remain close to current levels and hover around the 200-day moving average.  Even though the stock market broke record levels and ended the day above 14,000 on Monday, this 200-day moving average is just too strong, acting as a layer of support for some economic information and a layer of resistance for other economic information.  Friday’s Jobs Report will determine which direction we’re headed…so…Until next week…