Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – August 19th, 2008

Float Cautionsly Into Next Week

Oil Keeps Comin’ Down

Retail Sales dropped 0.1% in July.  This included automobile sales that were, not surprisingly, low.  With the price of oil, in July, no wonder auto sales were sluggish.  Import Prices skyrocketed, as well.  They have climbed 21.6% year-over-year to maintain a 12-month gain that we’ve never seen since recording the Import Price Index.  The, obviously, is a concern to the Federal Reserve as they watch inflation closely.  However, as oil continues to decline in value, numbers should tame, somewhat.

Hello…Is This Thing On?

A little reminder:  interest rates follow the yields from mortgaged-backed securities.  These yields move upwardly and downwardly just as the stock market does.  And when they move from value to value, and from day to day, they create trend lines.  For example, let’s say that yields on Monday read 1.0% and they increased steadily for the entire week.  At the end of the week, the yield read 1.5%.  If you drew a line from 1.0% to 1.5% the trend would be slightly upward.  Conversely, if the next week you ended at 1.3%, the curve would move down slightly.  Rates work in this manner and they like to stay close to the trend lines.  Any move, drastically in one direction or another, is uncomfortable to the trend line.  It happens, occasionally, with economic information that the market is not expecting, but all in the same, interest rates like to stay close to these trend lines.  So, this past week we have remained above a tough layer of support and the 25-day moving average (or trend line).  However, it has been awfully difficult to pass through a very tough level of resistance at the 50-day moving average (or trend line).  So, interest rates have been bouncing back and forth, trying to stay in between these two trend lines with not much economic information coming out to break rates through either of these lines.

Higher Inflation…Who Cares With Lower Oil Costs…

The Consumer Price Index (CPI) for July came in at 0.8%.  Twice as high as they were expecting; and the biggest year-over-year increase since January.  What kept rates calm was the fact that oil prices keep coming down from July’s highs.  So it looks like the market is willing to forgive these hot inflation numbers, with the understanding that next month, prices will be lower, having an effect on these numbers.  Crazy, huh?  What also helped rates was that Initial Jobless Claims, for the week, stay at 450,000.

What’s In Store For Oil?

Just as mortgage-backed securites like trend lines, so do all markets.  Including Oil!  We’re moving up to the 200-day moving average on the price of oil.  $110.18 is that price and it will be very difficult to move below that stubborn line of resistance.  Also, reported this week, was the Producer Price Index.  It was double what they expected, however, again, since oil was coming down, the market felt as though next month’s oil prices would tame the inflationary numbers that we’ve seen this week.

Frankly, I’m a little skeptical.  We may see a softening, however, we cannot seem to break through the 50-day moving average.  Also, the 40-day moving average (or trend line) is adding additional problems to interest rates breaking lower for us.  My thought is to quite delicately float into the week due to the price of oil, however, again, a truly itchy finger on the lock button due to the 200-day moving average for oil, and the 50 and 40-day moving averages for interest rates.  We will have probably moved into a lock position before the next article is released.  Until next week…

This entry was posted on Tuesday, August 19th, 2008 at 7:14 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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