Market Forecast for the week of 7/25-7/30

Here is this week's market update.  There is a lot of potential for volatility this week, on top of the already precarious US Debt Ceiling issue.

Mortgage bond prices fell last week, which pushed mortgage interest rates slightly higher.  Rates started off on a bad note Tuesday following stock strength and higher than expected housing starts data.  Things rebounded a bit Wednesday as European debt concerns dominated the headlines.  News that France and Germany reached an agreement Thursday on Greece sent the financial mortgage bond market downward.  We saw some negative movements the end of the week tied to significantly stronger stocks.  Mortgage bonds ended the week worse by about 1/4 of a discount point.

The Treasury will auction 2Y notes on Tuesday, 5Y notes on Wednesday, and 7Y notes on Thursday.  Traders will focus on foreign demand.


LOOKING AHEAD

Economic Indicator	Release Date & Time	Consensus Estimate	Analysis
Consumer Confidence	Tuesday, July 26, 10:00 am, et	58.1	Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
New Home Sales	Tuesday, July 26, 10:00 am, et	288k	Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
Durable Goods Orders	Wednesday, July 27, 8:30 am, et	Up 1.2%	Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates.
Fed “Beige Book”	Wednesday, July 27, 2:00 pm, et	None	Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
Weekly Jobless Claims	Thursday, July 28, 8:30 am, et	415k	Important. An indication of employment. Higher claims may result in lower rates.
Q2 Advance GDP	Friday, July 29, 8:30 am, et	Up 1.8%	Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
Q2 Employment Cost Index	Friday, July 29, 8:30 am, et	Up 0.7%	Very important. A measure of wage inflation. Weakness may lead to lower rates.
U of Michigan Consumer Sentiment	Friday, July 29, 10:00 am, et	63.5	Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

New Home Sales

New Home Sales data is compiled monthly by the Department of Commerce’s Census Bureau and is gathered from builders throughout the country. The data represents new home sales for the nation as well as four areas of the country: the Northeast, the Midwest, the South, and the West. Information on the average price of a home, the number of homes for sale, and the supply of unsold homes are also provided. The data is an important indicator because it shows any strength or weakness in the housing sector. The housing sector data is valuable because when consumer spending changes, it appears in this sector first. Consequently, a chain reaction typically occurs.  A slowdown in new home sales tends to lead to a slowdown in housing starts, which will continue to affect other indicators possibly continuing the recession, as has been the recent concern of most everyone


New Home Sales data is often volatile and difficult to predict.  Most analysts look at a three-month average in order to see any trends in the growth rate.  Surges in the release are often greeted with little more than an average reaction in the bond market.  However, the data remains significant in showing the condition of the housing sector of the economy.  The housing sector as of late has been a major disappointment but the Fed hopes the low interest rate environment will help.

Market Forecast for the week of 7/11

After taking a beating for most of last week, rates came back much stronger on Friday, and we are seeing continued gains today.  The big movers this week look to be the auctions taking place tomorrow, Wednesday and Thursday, and with the growing debt concerns in the EU we will hopefully see some good foreign demand.

As always, please call me with any questions!

Market Comment

Mortgage bond prices rebounded last week, which helped mortgage interest rates improve. Weaker than expected data resulted in positive rate movements. Factory orders and the employment report both failed to meet expectations. Factory orders rose 0.8% in contrast to the expected 1.0% increase. Unemployment came in at 9.2%, higher than the expected 9.1% mark. Payrolls increased 18k, considerably weaker than the expected 110k increase. Mortgage bonds ended the week better by about 5/8 of a discount point.

The Treasury will auction 3Y notes on Tuesday, 10Y notes on Wednesday, and 30Y bonds on Thursday. If foreign demand falters rates may come under pressure.

LOOKING AHEAD

Economic Indicator	Release Date & Time	Consensus Estimate	Analysis
Trade Data	Tuesday, July 12, 8:30 am, et	$43b deficit	Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
Fed Minutes	Wednesday, July 13, 2:00 pm, et	None	Important. Details of the last Fed meeting will be thoroughly analyzed.
Weekly Jobless Claims	Thursday, July 14, 8:30 am, et	420k	Important. An indication of employment. Higher claims may result in lower rates.
Retail Sales	Thursday, July 14, 8:30 am, et	Down 0.1%	Important. A measure of consumer demand. Weakness may lead to lower mortgage rates.
Producer Price Index	Thursday, July 14, 8:30 am, et	Up 0.2%, Core up 0.2%	Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates.
Consumer Price Index	Friday, July 15, 8:30 am, et	Up 0.2%, Core up 0.3%	Important. A measure of inflation at the consumer level. Lower than expected increases may lead to lower rates.
Industrial Production	Friday, July 15, 9:15 am, et	Up 0.2%	Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates.
Capacity Utilization	Friday, July 15, 9:15 am, et	76.8%	Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.
U of Michigan Consumer Sentiment	Friday, July 15, 10:00 am, et	71.8	Important. An indication of consumers’ willingness to spend. Weakness may lead to lower rates.

Jobs and the Economy

Our economy in the US is driven by consumer spending, which accounts for almost 70% of Gross Domestic Product (GDP). Three driving forces, high unemployment, high commodity costs, and a depressed housing market are currently hampering consumer spending and thus keeping the recession intact.

It is simple; a person without a job can’t spend money because they don’t have any. High food and energy costs, items that must be purchased to keep a household running, saps money that could be used for other "luxury" items like TV’s and cars. Lastly, many households relied on home equity to enhance lifestyles, pay for college, or make major improvements to the house.

The only way for the US to reduce our budget deficits and grow GDP is to get people back to work. We have a long way to go as the employment report showed last week. 

Mortgage Inquiries and Your Credit Score

The excellent Credit Sesame puts together a concise answer to one of the most frequent questions I get asked: "Will running my credit hurt my score?".  The short answer is "no", as outlined below:

1. Inquiries are all specifically coded by the credit bureaus to reflect the industry from which they came. That means if you apply for a mortgage, auto loan, credit card, personal loan, student loan, or any other type of loan the inquiry will likely clearly indicate the specific type of credit you’ve applied for. This is important because the type of inquiry plays a key role in how it’s evaluated.

2. Mortgage, auto and student loan inquiries are treated differently from all other inquiry types. If you don’t already know, these are the types of loan where you can shop around for the best interest rates and terms. As such, searching for any one of these loans can result on many lenders pulling your credit reports and scores. As such, your credit reports could get loaded up with multiple credit inquiries in a very short period of time because of your rate shopping activities.

3. FICO doesn’t want to penalize smart consumers for rate shopping, which is something we all should do when looking for funding for major purchases, like mortgages.  So, rather than assume each inquiry indicates a discreet and unique credit application, they built logic in their credit scoring model that identifies when you’re shopping for one loan rather than many loans.

Here’s how it works:

Mortgage related inquiries, which are very easy to identify because of #1 above, are ignored for the first 30 days they’re on your credit reports. So, if you apply for a mortgage loan on Jan 15^th it’ll take until Feb 15^th for that inquiry to become “visible” to the FICO score. That means you can apply for mortgage loans with 100 different lenders over a 30-day period and all 100 of those inquiries will be ignored.  That means they’ll have absolutely no impact on your FICO scores.

They go on to say that even if you go up to 45 days between the initial mortgage credit inquiry and the final inquiry, the bureaus will only count them as 1 inquiry instead of ignoring them altogether.  

If you have any other questions about credit or lending, please feel fee to contact me anytime!