Danny Salas

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…

Chico, CA Interest Rates Market Report – Economic Influences – June 27th, 2007

When Bonds Move Up, Their Yields Move Down

It’s been difficult to break though a tough layer of resistance for mortgage bonds.  Remember, when bond values move up, their yields (and interest rates) move down.  So, bonds are trying to make a move upwardly, however, keep getting smacked down by two tough trend line levels and the 25-day moving average barrier.  It takes some really solid reports to break through a barrier. 

Last week we had an interesting occurrence with Corporate Bond Issues.  Companies occasionally distribute debt against their company.  This enables them to raise money without selling stock.  Just before they offer these distributions, they play the market, so to speak, and manipulate Bonds like Treasuries, so that the price that they get for their Corporate Bonds will be higher.  It’s a little more complicate and convoluted than this, but it does have an effect on interest rates. 

Housing Sector

This week started out with the Housing Sector.  Existing Home Sales for May were slightly higher than economist expected at 5.99 Million Units as opposed to 5.90 Million.  The inventory of homes on the market interestingly rose by 5%.  New Home Sales for May were 915,000 units.  Experts expected 925,000, but they also revised April figures to a lower figure.  Inventory moved to a 7.1 month supply, which is significantly better than the high reports of 8.3 months.  So, all of the housing numbers continue to show that housing is stabilizing. 

Wednesday’s weaker than expected Durable Goods Orders report fell by 2.8% in May.  This was the lowest level since January and shows us that businesses are not making as many purchases for machinery, equipment, and particularly airplanes.  This really helped bonds, but unfortunately we’ll have to wait until next week’s report to find out if we’re going to bust through those tough layers of resistance.  There is a treasury auction of $13 Billion in Five-year Notes…and if foreign interest is scarce, than it could be troubling for mortgage backed securities.  Also, we will be reporting on the Federal Reserve’s Fed Policy Statement.  This is scheduled for release on Thursday, June 28, but also the Fed’s favorite gauge of inflation, The Core Personal Consumption Expenditure Report is due on Friday, June 29^th. 

Inflation Levels should be between 1.0 – 2.0%

Experts expect this report to show year-over-year inflation levels to be at 1.9%.  Remember, as stated in past articles, the Fed wants inflation at a 1% – 2% level.  So, with moderate economic growth, and lower inflation levels, interest rates should come down…but without foreign interest in our bonds, things could get ugly…so next week we’ll discuss the outcome of these reports.  I know you all can’t wait…until next week…