June 9, 2008
Keeping you updated on the market! June 9th 2008
Keeping you updated on the market!
For the week of
June 9, 2008
|
MARKET RECAP What began as a week with credit and equity markets anticipating an economic rebound and a forthcoming rate increase ended in heightened concerns over a full-blown recession and the prospect of an interest-rate cut. Early in the week, the general mood was that the economy was stabilizing and that the Federal Reserve could be positioning itself to support an over-depreciated dollar. In a speech last Monday, Fed Chairman Ben Bernanke said that the Fed is “attentive” to the currency and will guard against a jump in inflation expectations. Markets interpreted his remarks to mean that the Fed was finished lowering rates. In fact, many market participants began betting that the next rate change would be an increase. But market sentiment did a 180 by week’s end. First came the news that people are losing their homes at the highest rate on record in the first quarter of 2008. About 2.5% of home mortgages are in foreclosure, while another 6.4% of home mortgages are delinquent, but not yet in foreclosure, according to the Mortgage Bankers Association. Aggregated, that means that almost 9% of mortgages nationally are in trouble. The good news, slight as it might be, is that the trouble does not appear to be caused by the widely anticipated "rate shocks” caused by resets. According to the American Securitization Forum, an industry trade group, a borrower with a typical-size subprime ARM could expect payments to increase about $70 a month if it reset now, compared with about $450 a month if it had reset in December. The second blow was delivered by the Labor Department, which reported that a greater-than-expected 49,000 jobs were lost in May, pushing the unemployment rate up to 5.5%, the highest it’s been since October 2004. A loss of jobs is one of the criteria used by the National Bureau of Economic Research to determine when recessions begin and end. |
|
Economic |
Release |
Consensus |
Analysis |
|
Pending Home Sales Index |
Mon. June 9, |
83 |
Important. This leading indicator is expected to hold steady despite recent signs of a deteriorating economy. |
|
International Trade |
Tues. June 10, |
$59.3 Billion |
Moderately Important. The deficit will show a slight increase because of higher energy prices. |
|
Mortgage Applications |
Wed. June 11, |
None |
Important. Purchase applications fell to a six-year low as more buyers wait for home prices to stabilize. |
|
Beige Book |
Wed. June 11, |
None |
Important. Markets expect to see heightened inflation concerns from the Federal Reserve. |
|
Retail Sales |
Thurs. June 12, |
0.4% |
Important. Though sales are expected to increase, most of the gain is likely due to higher food and energy prices. |
|
Import Prices |
Thurs. June 12, |
0.2% |
Important. Lower demand is keeping import prices in check. |
|
Business Inventories |
Thurs. June 12, |
0.4% |
Moderately Important. Slowing growth in inventories suggests slowing consumer demand. |
|
Consumer Price Index |
Fri. June 13, |
All Goods: 0.4% (Increase) |
Very Important. An unexpected increase in consumer prices could send interest rates higher. |
TO CUT OR NOT TO CUT?
A sluggish economy and a spike in foreclosures suggest an interest-rate cut is in order, but a weak currency and creeping inflation suggest a rate hike is in order (rate increases make a currency more attractive vis-à-vis other currencies). What is the Federal Reserve to do?
Clues will be forthcoming in the Fed’s Beige Book, to be released on Wednesday. It will likely prove that the Fed’s greater concern is inflation, but that could easily change if Friday’s consumer price index shows consumer prices rising at an intolerable rate.
Either way, borrowers can expect a spike in rate volatility. Gaming interest rates – an already difficult endeavor – will become that much more difficult in coming weeks. Bankrate.com’s survey showed that mortgage rates increased across the board through most of last week, but the survey was released before Friday’s employment report, which could just as easily drop rates this week.
So what’s the longer-term rate trend that’s likely to emerge? Unfortunately, it’s impossible to tell at this point because of the schizophrenia of recent economic data releases.
Filed under Elite News & Updates by Elite Realty Services
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