Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – June 3rd, 2008

Who’s Bummed?  Looks Like Everyone…

Core PCE Saves the Day

Consumer Confidence came in at its lowest levels in sixteen years.  Not surprising, huh?  Consumer inflation expectations are high.  This points to the fact that consumers are genuinely concerned about where inflation is going and how that will affect their future income and expenses.

Last week I cautioned, “Since we’ve broken through these three levels of support and the 200-day moving average is still below current levels, it would be prudent to lock.”  That advice was critical!  As the very next day we lost thirty-eight basis points, followed by a fifty-six point loss which was below the 200-day moving average.  There is no floor of support below the 200-day moving average, so let’s get into what happened this week and see if we recovered.

Where’s Interest…in Bonds, that is…

We continue to see global inflation concerns coupled with relentless energy prices.  These influences, coupled with a very pour auction of 2-Year Notes and 5-Year Notes from the Treasury Department, truly hurt interest rates.  Remember that I’ve mentioned before that foreign interest in our Bonds drive interest rates down.  If there is no foreign interest, then plain and simply, interest rates increase.  If we don’t see a nice reversal of economic information that could spur an interest in bonds, things could get ugly.

The Gross Domestic Product (GDP) was revised to 0.9% from the previously reported 0.6% and Weekly Jobless Claims came in at 372,000.  The four-week moving average moved downward to 370,500.  But remember; anything above 362,000 is recessionary.

My Favorite Index…the Core (PCE)

Then it happened!  A nice reversal of economic information that spurred an interest in bonds!  The Commerce Department reported that the Core Personal Consumption Expenditure Index (the Fed’s favorite gauge on inflation) was reported at 2.1% on a year-over-year basis.  That’s just out of the Fed’s desire to have inflationary reports be between 1.0% and 2.0%.  What’s interesting about this is that the Core PCE takes out the volatile energy and food aspects of the equation.  So, when those are factored in, inflation is at 3.2%.  Kinda scary when we’re all paying $4.0 per gallon and then some for gasoline…Hmmm?

Is Wachovia History?

Wachovia Corporation’s CEO, Kennedy Thompson, was forced out of his position by Wachovia’s Board of Directors due to the fact that they have lost more than half of their stock value this past year.  Interestingly, Bank stocks in the United Kingdom are starting to sell off due to profit warnings.  This caused stocks in the U.S. to decline, giving mortgage-backed securities a nice boost, and therefore lower rates.

So you can see that volatility is still the word of the week.  We ended up just above the 200-day moving average this week and hope to remain there.  We even started to head back up toward the 25, 50, and 100-day moving averages, but plunged below late in the day.  Bernanke did indicate that a further lowering of the overnight rate is doubtful, so we’ll have to see how that weighs on inflation and the market.  Now get out there and buy, buy, buy!  Until next week…

This entry was posted on Tuesday, June 3rd, 2008 at 6:56 pm and is filed under Chico Home Loans, Home Buying, Interest Rates, Loan Qualification, 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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