Market Reports
A Mortgage Update from Jay Skwierawski for the Week of October 5
Hello Everybody!
Mortgage rates were mostly unchanged last week, even with all of the activity in the stock market caused by the rejection and then eventual passing of the financial rescue bill. Last week started with the U.S. House of Representatives voting against the plan, which caused sell-off of epic proportions in U.S. stock markets. In fact, in the last minutes of trading, stocks plunged to their single worst loss in the 112 year history of the Dow Jones. On Wednesday, the U.S. Senate passed a modified version of the plan, which included some tax breaks and a provision that increases FDIC insurance on bank accounts from $100,000 to $250,000. The House voted on the revised measure on Friday, passed it, and sent it on to President Bush who couldn't sign it fast enough. Once these tax breaks (along with some others and the FDIC insurance increase) were added into the bill, it made it easier for the members to justify supporting the bill! The effects of this bill probably won't be felt for a few weeks, as it will take that long for the government to put its action plan to work. In addition to the rescue bill being passed last week, there was also news that Wachovia Bank had been purchased by Wells Fargo. This was especially big news to the people over at Citibank, who made news the weekend before when it was announced that they had taken over Wachovia Bank with the federal government's assistance. Wells Fargo's takeover bid was much more favorable for Wachovia stockholders and for U.S. taxpayers, but Citibank didn't go for the "let's pretend that our agreement never happened" plea from Wachovia, and they filed suit over the weekend to stop the Wells-Wachovia agreement. Looks like they are coming to some sort of compromise this week. It will be interesting to watch this story develop further!
Other economic news released last week included:
Personal Income showed that incomes went down in August by 0.5 percent, instead of up 0.2 percent which was expected. Personal Spending was flat for August, lower than the +0.2 percent that was expected. I guess if incomes went down, we decided not to spend what we didn't have. Personal Consumption Expenditures (PCE) and Core PCE came in as expected. This is important because it is one of the Fed's favorite gauges of inflation. Consumer Confidence came in higher than expected, although this number was derived prior to the House voting not to pass the rescue bill on Monday. On Tuesday, The Chicago Purchasing Manager's Index (PMI) came in quite a bit better than expected. The PMI shows economic activity in the Chicago area, and is often a precursor to how the national numbers will look in the ISM report. However, on Wednesday, the ISM (Industrial Supply Managers) report came in much lower than expected. Thursday brought word that first time Unemployment Claims increased to their highest level in years at 497,000 last week. Finally, on Friday the employment report was released from the Labor Department showing that 159,000 jobs were lost in September, much higher than the 100,000 that were expected. The report also showed the unemployment rate staying at 6.1 percent, with the average work week dropping to 33.6 hours from 33.7 the month before and hourly earnings increased by 0.2 percent, lower than the 0.3 percent increase that was expected. Finally, the ISM Services Index came in slightly higher than was expected. Most of the news released this week, especially the employment news would normally be a positive for interest rates. Unfortunately, the news might have been "too good" for rates, as there are now expectations that the Federal Reserve could lower interest rates by as much as 1/2 percent prior to its next meeting.
This week is a slow news week, at least as far as economic reports are concerned. On deck are the following reports:
Tuesday - The release of the Federal Open Market Committee (FOMC) minutes - this report shows what was cooking at the Fed as they made their most recent interest rate decision (which was to leave rates unchanged.) This report has a HIGH impact on mortgage rates.
Wednesday - Crude Oil Inventories - This report is watched to see if consumers are really getting fed up with paying close to $4 per gallon for gas, or if they are getting used to the idea. It has a MODERATE impact on mortgage rates.
Thursday - First Time Unemployment Claims are reported. Will it bolt over the 500,000 level for the first time this year? (MODERATE)
Friday - The Balance of Trade report shows if we are importing more than we are exporting (which is typically the case) (MODERATE)
We will keep you updated on any major developments that occur this week. While I am writing this on Tuesday, the Dow is down over 300 points, this follows yesterdays drop of over 300 points (although at one point yesterday the Dow was down over 800 points.) This drop in the markets has occurred even though the Fed announced today that they would purchase commercial paper - a move that should improve liquidity. Federal Reserve Chairman Ben Bernanke is speaking and hinting that the Fed may need to take a second look at Fed policy. What does this mean - look for a fed rate cut, possibly by as much as 1 percent, and most likely before the Fed's next meeting on October 29. My guess is that we will see something this week.
Above is a chart which shows the price of mortgage bonds for the past 90 days. Remember that the price of bonds moves opposite of mortgage rates. On this chart, green and up are good for rates, while red and down are bad for rates. You will notice that there really was not much movement for the past two weeks, that's why mortgage rates have held steady for that period.
Have a great week!
Jay Skwierawski
President
First Sterling Mortgage Services, LLC
737 North Michigan Avenue, #1900
Chicago, IL 60611
312.268.7601
WE CLOSE ON TIME - EVERY TIME!
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