Danny Salas

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

Jobs Report Helps Rates

Stubborn Trend Lines FINALLY Broken

Last week we were talking about two things of great importance.  Mortgage Backed Securities difficulty regarding moving above the 200-day moving average, and what the Jobs Report numbers would be. 

Well, first thing on Wednesday morning, Automatic Data Processing came out with their ADP National Employment Report.  The ADP National Employment Report is a monthly estimate of private non-farm employment in the United States based on aggregated and anonymous ADP payroll data.  Now, they haven’t been the most reliable source regarding employment numbers, this past year.  However, the markets still watch them very closely and react to the information that they report.  The government expect 123,000 new jobs for the month of August, however, ADP’s figures came in at 65,000-significantly lower than expectations.  This resulted in the first significant rise above the 200-day moving average…FINALLY!  The next day we lost some ground, however, mortgage bonds sat at $100.22 level.  They 200-day moving average was at the $100.14 level.  Just $ 0.08 above.  Talk about positioning itself causiously in line with the next morning’s report. 

More Job Loses

Sure enough, Friday morning’s Job Report was below expectations.  Far below!  As opposed to 123,000 new jobs, the government reported LOSING 4,000 jobs.  This report was so bad, that now traders are wondering if the Federal Reserve will lower the overnight rate more than the .25% expected, and actually lower .5%.  The market reacted accordingly, and by the end of the day, mortgage backed securities were up 53 basis points.  This means that a loan that might cost you 1.0% point (or one percent of the loan amount) on Thursday, would only cost you 0.5% point (½ of one percent on the loan amount) on Friday evening.  A perfect time to lock!    

The unemployment rate remains steady at 4.6%, however, with the consulting firm Challenger, Gray, & Christmas announcing an 85% jump in corporate layoffs during August, compared to July, keep your eyes and ears tuned to these figures too. 

Lower Rates?

What this action did was to give a significant increase in bond values, lowering their yield, and therefore interest rates!  If we can stay above the 200-day moving average for quite some time, than that will become a layer of support, as opposed to the layer of resistance that it has been in the past. 

September 18^th is our big day.  Will the Fed cut the overnight rate by .25%, or by .5%?  What the Fed says when it releases the expected cut will be of severe importance.  The overnight rate will help lower rates on Home Equity Lines of Credit, personal loans, and auto loans, but it could have an adverse effect on mortgage rates.  If the Fed comments that they feel as though inflation is under control, we should be O.K., however, if they indicate that they’re cutting rates, even though inflation is a concern of theirs, interest rates could worsen. 

Bernanke Speaks

Ben Bernanke is speaking in Germany this week, and believe me, the markets are listening.  Next week we should just have time to report on the Fed’s rate decision.  With rates still hovering around 6%, it’s a wonderful buyers’ market out there…Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – August 7th, 2007

Rates Down, Then Up

Outlook on Banks:  UGLY!

If you pick up the papers or go on-line and read about what is transpiring with Banks lately, you’ll notice that generally, the news is not good.  When the CEO of one of the nation’s largest lender sells stock in his own company…and a lot of it…it might not make since in investing in that company.  Basically, that’s what is happening with the Banks and Savings and Loans right now.  Investors are weary about buying loans nobody wants.  So, interestingly enough, you may see lower interest rates for conforming loan amounts (loan amounts $417,000 and lower for single family residences).  However, higher interest rates for loans greater than $417,000.  It’s actually quite a phenomenon.  The difference is that loans that are of conforming loan limits can still be purchased in the secondary market by FannieMae and FreddieMac (the two largest purchasers or real estate loans in the world).  So, if there is a market to sell these loans, than they are still available to the public as good rates.  However, if there isn’t a market to sell the loan…than the risk goes up, and therefore the rates as well.  Now that’s in a quick nut-shell explanation, but basically that’s what’s up right now. 

Outlook on Jobs:  UGLY!

Last week, we did break above the 50-day moving average.  This has really helped conforming loans.  Keep in mind that as stocks move higher, money is pulled out of bonds and rates go up.  But when stocks are not doing so well, money gets poured into bonds and interest rates benefit from this.  This last Thursday, Initial Jobless Claims were reported at 307,000 which was basically what was expected.  The great news for interest rates came out with the Jobs Report on Friday.  The Labor Department reported that only 92,000 jobs were created in July, and they expected 135,000.  In addition to this, the unemployment rate dropped to 4.6% from 4.5% too.  This takes the heat off of waged-based inflation, and keep in mind that inflation is bonds’ worst enemy!  

Now, this Tuesday the Fed agreed to keep interest rates UNCHANGED.  So, the overnight rate stayed at 5.25%, which should really showed have helped mortgage backed securities (or bonds).  However, the “tone” of the statement indicated that the Federal Reserve is still concerned that inflation, “will fail to moderate as expected.”

Speculation Moving Rates

There goes that speculation again…causing uncertainty in the market and not helping interest rates (on conforming loan limits, remember).  So, watch the stock market, and when it’s moving up…bond values are probably moving down, causing rates to move up.  And…if the stock market continues to decline, as we saw this last week, bond values would move up…causing some lower rates.  We are in un-chartered water here, and it’s fun to watch and see what will happen on a daily basis.  Just be thinking about the unfortunate results of what’s occurring with these banks and lending institutions.  There are a lot of people losing their jobs, investments, etc. and so we’re with them in though as we move from this market, to hopefully soon, another market…how quickly they can change…until next week…

Chico, CA Interest Rates Market Report – Economic Influences – April 2nd, 2007

Well, on Friday the Core Personal Consumption Expenditure Index ended up reporting higher than expectations.  As mentioned in last week’s article about Chico Interest Rates, this could have a negative effect on mortgage backed securities…and guess what…it did.  Particularly due to the fact that the index rose 0.3% higher, in February, than th

Interest Rates Going Up

e previous month.  This is the largest monthly increase since August and higher than the 0.2% increase that was expected, giving the index a 2.4% reading, when the Fed really wants the index at 2.0% for a few months before considering lowering the overnight rate.  

Remember last week we mentioned “trends” or “averages?”  After Friday’s reports bonds actually faired well for a few hours, however hit the 100-day moving average of bond prices and bounced off that trend line like two opposite poles of a magnet.  Remember, when bond prices move downwardly, their yields move upwardly, causing interest rates to rise.  Currently, we are now focused on the 50 day moving average and the 200 day moving average (both of which are priced below the 100 day moving average).  If we cannot get inflation in line and if this economy continues to have hot reporting indices, than we could be in for a higher interest rate trend throughout the spring.  

This next week has several reports coming out that could move rates, however, the biggest market movers could be Thursday’s Jobless Claims Report and Friday’s Non-Farm Payrolls Report and The Unemployment Rate.  Generally speaking, weaker than expected economic data is good for interest rates.  So, let’s hope that the unemployment rate moves up considerably and new jobless claims spike upwardly too.  This would put homebuyers in a better capacity to buy, with lower interest rates!  It looks as if it’s going to be a rocky spring, so pay close attention to this article and see how the markets can be extremely volatile.  For those of you not sure about the unemployment rate comment, yes, it was a joke.  Until next week….

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