Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – May 13, 2010

Political Chess Game Could Damn Financially Troubled Europe

Will ECB Package Rescue?

Is the $1 Trillion European Central Bank (ECB) Rescue Package too little, too late?  The world is trying to figure that out.  It’s election time in Europe, and many feel as though the funds were held up, until after the election in Germany.  So, this political strategy may have damned Greece, and other European Countries, by the stalling too long.  Investors are trying to figure out the consequences of the delay, and how, or even if, the financial band-aid will fix the problem.  As investors ponder, money flows in and out of world economies widely effecting Stocks and Bonds.

$16 Billion 30-Year Note Auction

The uncertainty in Europe may benefit today’s Note Auction.  We’ll have to wait and see.  If the feeling is that the rescue package is too little, too late, than interest rates, in America, will benefit.  So much uncertainty!

Initial Jobless Claims

The number of Americans filing for unemployment benefits moved to 444,000.  Just slightly higher than the 440,000 expected, bringing the total unemployment recipients to 4.63 Million, not taking into consideration the 5.13 Million people receiving Emergency Unemployment Compensation.  I’m sorry folks, but until these numbers start looking better, expect housing to grow at a more modest pace.  Low rates are great, however, jobs will benefit real estate, more than lower rates.

Initial Jobless Claims Higher Than Expected

Locking Advice

We’re back in CAREFUL float mode!  It, again, doesn’t get much better than this, however, we’ll have to watch the Auction Results, closely, and carefully!

Related Must Reads

European Fix
Why Be Leery Of Yesterday’s Auction Success: A Look Into Why 30-Year Notes Are Harder To Auction
Interesting Side Note On Unemployment: How The Numbers Are Squewed

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Chico, CA Interest Rates Market Report – Economic Influences – Nov 4th, 2008

Interest Rates “Come About”

Interest Rates made an abrupt U-Turn in positive territory on Voter Tuesday (probably because Obama was leading in the polls).  Actually, it looked as though the Monetary Policy Committee overseeing the Bank of England was poised to lower their overnight rate by 0.5% points to 4.5%.  They also have another meeting Thursday, where they are expected to lower it again by an additional 0.5% points.  This helps with the value of our dollar, particularly after we have continued to lower our overnight rate to record lows.  Also expected to join in on the rate slashing is the European Central Bank.  They’re meeting in Germany this coming week.

As I wrote this article, rates finally moved into positive territory, after eight straight days of ugliness.  Let’s go back to last week and see what was occurring.

Up, Down, Up, Down

First, Wednesday was Fed Day.  Everyone expected a 0.5% point cut but the stock market anticipated this on Tuesday and had a nice 900 point rally, so long-term rates actually benefited Wednesday, after being beaten on Tuesday.   This type of volatility is not only hard to prognosticate, it’s down right impossible. This month alone we’ve moved up or down in the stock market so ridiculously and mortgage backed securities have moved over 300 basis points in six days.  That’s 3.0% points on a mortgage loan.  But, we’ve now moved back about 350 basis points in four days.  If my computer screen were any closer, you could make a bobble-head out of me.

OK, It’s Official…

But in the end, the Fed did cut the rate by 0.5% and long term rates paid the price, but minimally.  With Hong Kong and Taiwan cutting their rates, it helped stabilize the dollar and therefore not too much weight was given to the cut.  Oh yeah…it’s official…we’re in a recession.  That’s right!  The textbook definition of a recession was met this past week with the documentation of two consecutive quarters of a negative Gross Domestic Product reading.

The Fed’s favorite gauge on inflation, The Personal Consumption Expenditure Index (PCE) brought some good news (uh, for rates that is).  Even though the Fed would like to see Core Inflation between 1.0  to 2.0%, the Core PCE dropped from 2.5% to 2.4%.  This was the weakest spending performance by consumers on a quarterly basis in over thirty years.  Also, the Bank of Japan ended up lowering their benchmark interest rate to 0.3% to help stave off any further inflation in their country.

Opportunity Knocks

So, when we see a U-turn in rates, as we saw on Voter Tuesday, it’s wise to take advantage of the opportunity and lock clients in.  Why?  Well, the foreign investors that I’ve been writing about for years, that loved to put money into our mortgage-backed securities, are kind of sitting on the sidelines and waiting to see the implications of the Treasury Departments’ guarantees.  Until there’s more comfort in that arena, don’t expect significant changes in interest rates.  The opportunity knocked on Voter Tuesday (let’s hope in more ways than one) and that was a good time to lock.  We do have some support, now, above the 25, 50, 100 and 200-day trend lines, but with all of the newness and volatility in the marketplace, who knows when we’ll have more opportunities like this one.

Values are down, rates are good…what are you waiting for?  NOW is an unbelievable time to buy…Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – July 1st, 2008

Plan Accordingly…Expect High Oil, Energy, & Food Prices…

Let’s take a look at how oil prices are affecting us.  First, stroll back with me to September of 2007, when the overnight rate or Fed Funds Rate was at 5.25%.  The United States was heading for a recession and so, to help spur the economy, the Fed cut their rate and continued to do so until their meeting on April 30, 2008.  Oil was at $73 per barrel and the Euro was $1.35.  Cutting the overnight rate makes higher interest rates in Europe much more appealing to investors around the world.  So, with each cut the Euro gained more and more strength and appeal.  As mentioned in a previous article Oil is priced in Dollars.  So, it now takes $1.56 to match one Euro.  Since dollars are declining, the price per barrel will move up accordingly.  So, we’ve gone to $143 per barrel as of this morning.  To make matters a little worse, European Central Bank President, Jean – Claude Trichet announced that is toying with raising their overnight rate to stave off inflation.  This will have a negative effect on oil prices, as well.  Europe’s inflation rate was reported at 4% this week.  They also want their readings between 1 and 2%, so a hike in their overnight rate would be completely expected.  The ECB’s job is only to keep inflation levels low, not worry about the economy as well, like with our Fed.  With oil prices, energy prices, and food prices skyrocketing, it’s time to really look at your household budgets and plan for a tough road-a-hoe for a while.

Recessionary Jobless Numbers Continue

The final Gross Domestic Product (GDP) numbers were 1.0% higher for the first quarter and right in line with expectations.  Initial Jobless Claims were at 384,000 and the four-week average moved to 378,250.  As we have learned, anything greater than 362,000 is recessionary.  The Fed’s favorite gauge on inflation, the Personal Consumption Expenditure Index (PCE) came in at 0.1% higher, but the market expected a 0.2% higher reading.  This left the Core PCE at 2.1%…not too shabby!  The Fed wants to see inflation reading between 1.0% and 2.0%, so we’re close, but the paragraph above still has me scarred.

Stock Market Blues

The stock market has been plummeting lately.  The Dow Jones Industrial Average had its worst June since the Great Depression.  Now that’s just too alarming.

It looks like my report on Israel attacking Iran may be closer to a reality than some think.  ABC News reported that Israel is getting awfully nervous about Iran’s nuclear capabilities.  Another scary thought!

So, rates ended up dipping a little with the inflation numbers, primarily from the PCE, and the stock market continues to do poorly, however, have stocks bottomed?  They seem to be ready for a correction, and that could be bad for rates.  So while were’ hovering around 6.0% with an APR of 6.198%, I’d take advantage and do some locking in this week.  It’s going to take some time, but once the Fed starts increasing the overnight rate, that should help long term interest rates again.  Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – December 11th, 2007

Jobs Report Figures Compared to ADP

Look to your right when you’re in Valencia and you’ll see the interest rate chart I’m staring at off on the horizon.  That’s right…you’d get whiplash if you read it too quickly.  The interest rate chart looks like The Colossal at Magic Mountain.  First, remember me mentioning Automatic Data Processing (ADP) in other articles?  Well, they came out and said that the US would report about 189,000 new jobs.  We were expecting 70,000.  Another report showed Productivity revised to the highest level in four years, at 6.3%. 

Wage Based Inflation Lower

Interestingly, however, was the fact that Annual Unit Labor Costs, a gauge of inflation and profit that is closely observed by the Fed, declined 2.0%.  It’s the steepest decline in four years.  So, even with the hot jobs estimates from ADP and high productivity, what helped interest rates was this lower read on the Annual Unit Labor Costs (keeping wage-based inflation lower).

Other Countries’ Lower Rates Will Lower Our Rates

‘This last week Great Britain’s central bank, The Bank of England, lowered their overnight rate to 5.5% from 5.75%.  This is good news for the US because it will ease some of the pressure on the lowering US Dollar.  The European Central Bank remained steady, however.

Change Was Eminent

As you saw in last week’s article, we were enjoying low, low interest rates.  So low that we knew a correction was eminent.  It happened with the jobs numbers formally coming in at 94,000 new jobs (not ADP’s numbers, however, still quite high).  What was worse (for rates) was that the unemployment rate remained at 4.7%.  They expected those numbers to move to 4.8%.  Coupled with an Hourly Earnings number up 0.5% and above the 0.3% that was expected, this caused higher wage and tight job market fears.  Both inflationary – and interest rate’s nemesis.  So, the Fed’s task of determining which factor, weaker jobs growth compared to wage-based inflation, would have an impact on a .25% or .50% cut in rates on the 11th. 

It’s An Excellent Time To Buy

We’re back in the volatility craze right now, for sure.  And what happened on the 11th?…The Fed lowered the overnight rate (or Fed Funds Rate) only .25%  This was a little surprising to the stock market which was not doing very well late Tuesday.  It was down over 220 points.  So mortgage backed securities were up 74 basis points around noon time.  Remember, that’s approximately .75% better in points than a loan locked the day before.  The dollar responded to this move nicely.  This preserved the value of bonds, but obviously, the stock market did NOT like the move.   There is a level of resistance, just above where interest rates ended up on Tuesday the 11th, so we’ll have to watch those levels and lock in interest rates if they bounce off of those levels and cannot pierce through them.  Need I remind you that it’s an excellent time to buy?  Until next week…