Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – September 4th, 2007

Inflation OK, But Friday Will Tell

Market Jitters

As expected, it has been grueling, trying to get past that stubborn 200-day moving average.  The stock market started to rebound, which hurt interest rates earlier last week.  Also hurting rates was the fact that the Federal Reserve Board’s Minutes, from their last meeting, didn’t give us any hints as to what they will do on their September 18^th meeting.  Most expect the Fed to lower the overnight rate from 5.25%, however, the market’s a little jittery right now, as you can imagine. 

Jobless Claims Increasing?

This week’s Initial Jobless Claims numbers were reported at 334,000.  It wasn’t too long ago that the expected weekly number was coming in at approximately 300,000.  The week before we hit 325,000.  We’re watching this closely because recently, waged-based inflation was a real concern with the Federal Reserve.  If the unemployment numbers start to grow, there isn’t as much pressure to pay people more for the same services, easing these inflationary concerns.  Remember, inflation is interest rate’s nemesis! 

Fed’s Favorite Inflation Gauge Keeping Things Cool

The Gross Domestic Product numbers were revised to 4.0% for the second quarter.  Lower than the expected 4.1%, however not a recessionary figure.  We’re still experiencing positive economic growth.  The long awaited Core Personal Consumption Expenditure Index came in less than expectations at 0.1%.  Keep in mind that this is the Federal Reserve’s favorite gauge on where inflation is.  The PCE tame reading on inflation should have helped bonds, however, interestingly, the stock market read this as support that the September 18^th meeting would surely have a cut, and the move to the stock market actually hurt bonds…what a catch 22, hey? 

FHA Refi’s To The Rescue?

Now, what’s all over the news is President Bush’s speech on tackling the mortgage credit crisis that we have been alluding to in past articles.  While some of the proposals may be beneficial or helpful to many homeowners, any proposed government bailout for struggling homeowners will have to go through Congress and could be a significant burden on the US taxpayer.  Basically, one of the elements in Bush’s plan would allow homeowner’s with good past credit history, and were recently struggling with their mortgage payments, to refinance with a Federally Insured FHA loan to 97% of the home’s value.  Now, keep in mind that FHA loan limits, currently in Butte County are only $304,000.  So, as disused in last week’s article, an increase in that loan amount could potentially help thousands more in our area.  They are asking for easier qualification guidelines for the loans as well.  This will be an interesting story to follow in the weeks ahead. 

What Will Next Friday Show?

Friday is going to be a big day.  The Jobs Report information will be released and this report could move rates vigorously.  Remember how I have been talking about the 200-day moving average (or trend line) being a very tough level of resistance to break through?  Well, we have not been able to get mortgage bonds to move past this level.  Also, the 100 day moving average has been a level of support.  So try and follow this…the 200-day moving average has been moving downwardly and the 100-day moving average has been moving upwardly.  When bond values move up, rates move down, and vice-versa.  So, with the 100-day moving up toward the 200-day trend line…where will interest rates go?  Will the level of support move bonds up past the 200-day, or will the level of resistance bring bond values down below the 100-day moving average causing rates to increase?   We’ll see in next week’s article.  Until then…

Chico, CA Interest Rates Market Report – Economic Influences – April 30th, 2007

Core Personal Consumption Expenditure Index bring rates lower

Existing Home Sales came in weaker than expected. 

March showed 6.12 Million Units, below expectations of 6.45 Million.  The number of existing homes for sale fell by 1.6%.  Keep in mind, however, that February was extremely cold all over the nation.  March homes sales would have been affected by people out looking for homes in February.  Not the warmest climate or best time to be home-shopping. 

Last week, we saw bonds move above the 25 day moving average, but just couldn’t get over the 50 or 100-day averages.  Durable Goods Orders moved up 3.4% when we thought they would only move upwardly by 2.5%.  Corporations spent an increased 4.7% in core capital equipment spending, which was the largest movement since September of 2004.  

The Treasury Auctioned 2-year Notes on Wednesday, and 5-Year Notes on Thursday.  Foreign interest in Treasury Notes have really helped keep interest rates low over the past years, however, foreign investment has been lacking lately.  This could really hurt rates, in the future, so we’re watching foreign interest very closely.  

The auctions didn’t go so well, coupled with the Dow moving over the 13,000 level.  So on Thursday, we broke below the 25 day moving average again.  Friday’s 1^st Quarter Gross Domestic Product Report was weaker than expected.  However, the Employment Cost Index (ECI) which measures the affect of wage and benefit cost growth in relation to inflation, showed some hints of inflation, erasing the GDP’s results. 

After Friday’s economic information, bonds were getting awfully close to moving below the strong level of support of the 200-day moving average.  If we broke below that trend line, we could have been seeing much higher rates for a long period of time.  I have mentioned the importance of this trend-level in the past few articles.  We have been above this level for eight months and the last time we went below this trend-line, it acted the opposite of how it acts now.  So, instead of being a level of support for lower rates, it was a level of residence for higher rates…for one and one-half years!  Scary!!! 

Thank goodness for the ‘ole Core Personal Consumption Expenditure Index (PCE). 

It was reported unchanged for March.  You may remember that in last month’s article, this really helped interest rates.  It did again this month with the year-over-year core inflation level down to 2.1%.  Remember that the Fed wants this level between 1 to 2% for approximately three consecutive months before lowering the overnight rate.  Interest rates reacted very positively regarding this report.  It truly should be the most watched report that mortgage brokers, banks, and realtors should keep an eye on, bus most don’t pay much attention to it.  That’s why working with a professional that knows the industry can be so beneficial.  

Next week is truly back-end oriented!  By the time you read this, Friday’s monthly Jobs Report.  If the news is good news for jobs, expect that we’ll be trading below the 200 day moving average with higher rates to come.  If the news is not so good for jobs, we could see an improvement for rates. 

Stay tuned for next weeks report on what happened in the job market and where rates went.  If my article feels upbeat and motivational, than the jobs report was poor, if I come across depressed and sad, then a lot of people are stoked that they’ve gotten a new job.

See ya next week…