>> Market Update INFO THAT HITS US WHERE WE LIVE At the end of September, the supply of homes for sale was reported down 1.8% from the previous month in 27 major metropolitan areas. We all know the factors. Home prices are very affordable, mortgage rates and very favorable and first-time homebuyers are taking advantage of the $8,000 tax credit set to expire at the end of November, now just seven weeks away.
The Mortgage Bankers Association saw loan applications for home purchases rise 13.2% last week, as the MBA's Purchase Index hit its highest level since last January. The average rate on 30-year fixed rate mortgage slid to 4.89% with an average 1.13 points (including the origination fee) for 80% loan-to-value ratio loans to borrowers with good credit. Freddie Mac's weekly survey of conforming mortgage rates put the average 30-year fixed rate mortgage at 4.87% with an average 0.7 point for 80% loan-to-value ratio loans to borrowers with good credit. >> Review of Last Week BOUNCING BACK... The markets had lost ground for two weeks straight, but last week they got back on track with a vengeance. Hints at good Q3 corporate earnings helped. Some retailers also reported September sales that indicate the consumer is ready to step up to the plate and contribute to the recovery.
We also had the ISM Services index increasing to 50.9 in September, putting it in territory that signals expansion for the non-manufacturing part of our economy. Corporate earnings season got off to a nice start with Alcoa breaking its string of three straight quarterly losses with a surprise profit for Q3, and not just from cost cutting but also from higher sales. We even had good news from retailers encouraged by better-than-expected September numbers. Target, Kohl's, J.C. Penney and TJX all raised their Q3 or second half profit outlooks.
Initial claims for unemployment came in at 521,000, their lowest level since the first week of the year and continuing claims dropped 72,000, to 6.04 million. There are now economists who expect at least one month with net payroll gains before the year is out. The week ended with the trade deficit declining to $30.7 billion for August. Experts feel this solid showing for U.S. exports supports the case for a strong global recovery, with the U.S. helping supply capital goods to the rest of the world.
For the week, the Dow ended UP 4.0%, to 9864.94; the S&P 500 was UP 4.5%, to 1071.49; while the Nasdaq also rose 4.5%, to 2139.28.
The soaring stock market and a weak auction of Treasuries sent the bond market reeling, putting pressure on prices, including some mortgage backed securities. This included the FNMA 30-year 4.5% bond we watch, which was hammered down from the previous week's $101.66 close, dropping to $100.91. But, as reported above, mortgage rates stayed in super low territory. >> This Week’s Forecast MORE ON CONSUMERS, INFLATION AND MANUFACTURING... In spite of everything being squeezed into three days, it's a pretty full week of economic reports. Retail Sales give us an update on the consumer's willingness to contribute to the recovery and CPI readings keep an eye on inflation. The Philadelphia Fed Index, Industrial Production and Capacity numbers gauge manufacturing. The FOMC Minutes give us more on the Fed's view of the economy from their meeting on September 23. >> The Week’s Economic Indicator Calendar Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of October 12 – October 16 | Date | Time (ET) | Release | For | Consensus | Prior | Impact | | W
Oct 14 | 08:30 | Retail Sales | Sep | –2.1% | 2.7% | HIGH | | W
Oct 14 | 08:30 | Retail Sales ex-auto | Sep | 0.2% | 1.1% | HIGH | | W
Oct 14 | 10:00 | Business Inventories | Aug | –0.9% | –1.0% | Moderate | | W
Oct 14 | 14:00 | FOMC Minutes | Sep | | | HIGH | | Th
Oct 15 | 08:30 | Initial Unemployment Claims | 10/10 | 525K | 521K | Moderate | | Th
Oct 15 | 08:30 | Continuing Unemployment Claims | 10/3 | 6.06M | 6.04M | Moderate | | Th
Oct 15 | 08:30 | Consumer Price Index (CPI) | Sep | 0.2% | 0.4% | HIGH | | Th
Oct 15 | 08:30 | Core CPI | Sep | 0.1% | 0.1% | HIGH | | Th
Oct 15 | 10:00 | Philadelphia Fed Index | Oct | 12.3 | 14.1 | HIGH | | Th
Oct 15 | 13:00 | Crude Inventories | 10/9 | NA | –0.98M | Moderate | | F
Oct 16 | 09:15 | Industrial Production | Sep | 0.1% | 0.8% | Moderate | | F
Oct 16 | 09:15 | Capacity Utilization | Sep | 69.7% | 69.6% | Moderate | | F
Oct 16 | 09:55 | Univ. of Michigan Consumer Sentiment–Prelim. | Oct | 73.5 | 73.5 | Moderate | >> Federal Reserve Watch Forecasting Federal Reserve policy changes in coming months. Fed Chairman Ben Bernanke told Congress last Thursday that interest rates will probably stay low for some time. But he also said that as the economy recovers, the Fed won't hesitate raising rates If inflation picks up. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same. Current Fed Funds Rate: 0%–0.25% | After FOMC meeting on: | Consensus | | Nov 4 | 0%–0.25% | | Dec 15 | 0%–0.25% | | Jan 27 | 0%–0.25% |
Probability of change from current policy:
| After FOMC meeting on: | Consensus | | Nov 4 | 1% | | Dec 15 | 3% | | Jan 27 | 13% | |
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