Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – Aug 24, 2009

Nothing Today, But Week Of Info.

No real economic information to report today.  The big news will be the rest of the week.  Coupled with the $109 Billion in Treasury Auctions that we’ll be experiencing.  It would be a wonderful surprise if those auctions faired well, but it’s not expected.  So, Gross Domestic Projuct (GDP), Housing Information, Core Inflation numbers and Consumer Sentiment will all be released this week, and may have an influence on where rates will go.  But the auctions will be the stongest mover of the bond market. 

We’ve Broken Through Most Trend Lines

On Friday, we broke through the 25, 50, 100, & 200-Day Moving Averages.  For a report on Trend Lines, Read August 19, 2008’s Post, explaining how these lines form and influence interest rates.  So, it will be difficult to break back above these strong lines of resisence, however, again, once thrid quarter earnings numbers start to roll out, we expect lower rates.

Chico, CA Interest Rates Market Report – Economic Influences – July 31st, 2007

Inflation Slowing Its Pace

We should thank Good ‘Ole Ben for watching his comments appropriately and helping interest rates by stating, “Core inflation should edge a bit lower, on net, over the remainder of this year and next year.  If energy prices level off as currently anticipated, overall inflation should slow to a pace close to that of core inflation in coming quarters.” 

Rates are bouncing between the 25-Day and 40 & 50-Day Moving Averages

Bonds have been basically taking a ride on the 25-day moving average and fortunately just hanging out just above this trend line.  Remember, when Bond prices go up (their yields move down), home loan rates improve, and when Bond prices go down (their yields move up), home loan rates worsen.  A good mortgage b roker will follow these movements and know when a good time to lock in an interest rate is.  Also, there are “trends” that bonds (mortgage backed securities) follow.  For example, as mention above, the 25-day moving average, however, there are also 40-Day, 50-Day, 100, 200, etc.  This past week we have been bouncing in-between the 25-Day and the 40 and 50-Day moving averages.  So, the current “trend” is just above the 25-Day moving average…so since we’re above that, it acts as a level of support for interest rates.  If we can get enough economic information to catapult us above the 40 and 50-day moving averages, then we could see lower rates.  If you don’t understand what I just wrote, go back and read it again.  It’s an excellent explanation as to how this stuff works, I don’t mind saying so, myself! 

Median Priced Home Moving Up

Existing Home Sales for June were at 5.75 Million Units.  Less than the 5.90 Million expected.  However (and this is a big however), the median home sales price increased 0.3% to $230,100.  This is the first year over year price increase in 11 months.  Also, the monthly sales inventory dropped from 8.9 months to 8.8 months.  Further evidence that the housing market is stabilizing and not as bad as the media is portraying. 

Obviously, the stock market has been of some interest lately.  Generally, stocks and bonds move in opposite directions, as if stocks are moving down, then people pull money out of stocks and move them into bonds.  With stocks at some all-time highs, as of late, and with oil giant Exxon reporting weak earnings, you can just imagine how volatile the stock and bond markets have been recently.  To add to the turmoil, the Gross Domestic Product numbers are showing hotter than expected at 3.4% (causing rates to increase), but Tuesday’s release of the Fed’s favorite gauge on inflation, the Core Personal Consumption Expenditure (PCE) Price Index was reported at a cool 0.1% for June.  This also shows the year-over-year Core PCE at 1.9%.  Remember from last articles that the Fed wants to see inflation between 1-2%.  Consumer Confidence is way up, so people are still ready to spend their money. 

It looks as though the real estate market is stabilizing, and we should be set for a nice bond and interest rate rebound.  So, get ready…but keep in mind…how quickly markets change…

Chico, CA Interest Rates Market Report – Economic Influences – July 24th, 2007

Bernanke’s Statement

Well, Federal Reserve Chair Ben Bernanke’s statements did have an influence on the market.  Wednesday and Thursday of last week he spoke to Congress and The Senate and his question-answer session went fairly well for Bonds.  Even though he mentioned that inflation is still a concern, he said that recent numbers have been showing moderation of inflation.  So, we should thank ‘Ole Ben for watching his comments appropriately and helping interest rates.  “Core inflation should edge a bit lower, on net, over the remainder of this year and next year.  If energy prices level off as currently anticipated, overall inflation should slow to a pace close to that of core inflation in coming quarters.”  Also of particular interest were his comments on “the ongoing housing correction…”  The media is just so dang powerful…they report what they want.  Here’s what transpired:  …”might prove larger than anticipated,” was the complete sentence that the media was so quick to print.  But here’s the big picture…he goes on to say that …”larger than anticipated and impacting consumer spending,” but that consumers are spending at a very wholesome stride. 

Dow Tops 14,000

Not too much information to report on this last week, so interest rates and bonds have been battling it out with the Stock market to see which investment would be more beneficial.  Rates have been moving up and down, almost on a daily basis, with one day stocks doing well…then the next day bonds doing well.  As you probably heard, the stock market broke a record 14,000 mark on the Dow…then Google came out and reported disappointing earnings which sent shockwaves through the market, and investors immediately got spooked and moved money from stocks, to bonds. 

Remember that when Bond prices go up (their yields move down), home loan rates improve, and when Bond prices go down (their yields move up), home loan rates worsen.  A good mortgage broker will follow these movements and know when a good time to lock in an interest rate is.  There are also “trends” that bonds (mortgage backed securities) follow.  For example bonds will make a 25 day, 50 day, or 100 day moving average that they like to stay close to.  By watching and measuring these “averages” or “trends” you can generally tell where bonds (and therefore interest rates) will move. 

Bonds vs. Stocks – Who Will Win?

We have been battling-it-out with the 25-day moving average for quite some time.  Friday, we finally ended the day above that hard trend-line of resistance.  We have remained just above this for a few days.  Thursday, we had initial Jobless Claims lower than the last two months still suggesting a strong labor market.  This Monday, foreign investment six-month T-Bills was strong.  More bond sales are occurring Tuesday, so foreign investment is huge regarding where interest rates will go.  Let’s keep our fingers crossed.  If we can continue to show strong foreign investment in our bonds, we should be able to break above that stubborn 25-day moving average and see better rates.  If stock earnings are reported strongly; then it would weaken any gains.  How quickly markets can change…Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – April 16th, 2007

Last week we talked about the Federal Reserve Open Market Committee’s, March 21^st minutes being released to the public in Wednesday.  In those Fed Minutes, the Fed stated the Labor costs might rise more rapidly than expected.  Also, of concern, is the fact that there is evidence of a decline in productivity.  This means that employers may find themselves having to pay new workers higher wages, or increase existing workers’ compensation for the same jobs.  All of which adds to concerns of wage-based inflation. 

Also, on Wednesday, Fed Chairman Ben Bernanke spoke regarding all of the recent concerns in the mortgage lending industry.  Jeffrey “The Dissenter” Lacker spoke with economists and Fed President Michael Moskow spoke on the economic outlook for the United States.  All speakers showed concern for inflation.  It was definitely a busy Wednesday with the outlook for interest rates looking somewhat grim.  So, through the week we saw slightly increased rates…until Friday…

On Friday, the Producer Price Index (PPI) Report, which measures wholesale or producer inflation, showed that Core (PPI) was unchanged for the month of March (coming in less than the expectations that we would see a 0.2% increase).  It’s very interesting to note that this is a perfect example on how interest rates move a lot on speculation with what might happen in the market, as opposed to what actually does happen.  Even though there was no change, in those two months, a change was expected.  This assisted with the overall year-over-year Core PPI inflation rate to 1.7%, down from the 2.2% reading that we saw in January.  Core Inflation, at the wholesale or producer level is beginning to show signs of lower inflation.  Great news for interest rates, however, we’d really like to see this passed on to the consumer level.  This is where we could really see help with lower interest rates.  This coming Tuesday, the Consumer Price Index (CPI) is being released.  This will give us a read on consumer inflation and may be a real help with lower interest rates.   

The University of Michigan’s Consumer Sentiment Index for April was reported at 85.3 which is was lower than expectations of 87.5.  The report showed that people have concerns about inflation underscoring the significance of next week’s CPI Report.  

The US Dollar has been weakening of late against the Euro.  A weaker Dollar gradually pressures our Bond values lower for foreign investors…and reduced demand for our Bonds can cause Bond prices to go down, and interest rates to go up over time.  We have been watching this very closely for months, as foreign investment in our Bonds has really been a major impact on our lower interest rates.  If these foreign investors start taking their money and putting it in other economies, our bonds’ values could go down, causing their yields to go up, and interest rates follow bond yields.     

The 200-day moving average has been a nice floor of support for mortgage backed securities.  Tuesday’s CPI report will hopefully show inflation at a comfortable level.  Its hard to break through these “trend lines” and may determine the future of rates throughout the summer.  This week holds a lot of information that will be reported on next Thursday, so until next week…