Market Watch

by: Sharon Campbell

QUOTE OF THE WEEK… “The doors of wisdom are never shut.” —Benjamin Franklin

INFO THAT HITS US WHERE WE LIVE… The federal government may be shut down, but let’s hope the doors of wisdom are still open in Washington, so we can get back to business as usual. Fortunately, the good old American consumer has not lost faith in the housing market. Fannie Mae’s September 2013 National Housing Survey reported that the share of Americans who say now is a good time to buy a home went up by 1 percentage point, to 72%. The share who say now is a good time to sell went up by 2 percentage points, to 38%. In addition, it was reported that the majority of the mortgage market does not expect the government shutdown to impact the industry short term.

The biggest news of the week relating to mortgage rates was the President’s nomination of Fed vice chair Janet Yellen to the Fed chair post now held by Ben Bernanke. Yellen has supported the central bank’s mortgage backed securities (MBS) buying program that has kept rates low. One financial analyst noted, “She is a big supporter of the MBS buying spree, so mortgage rates will go down, not up, with this particular appointment.” Observers also believe she will not start tapering those bond purchases until unemployment drops to 6.5%, not expected any time soon. Her nomination should be approved by the Senate.

BUSINESS TIP OF THE WEEK
… Focus your sales process on helping prospects. Look at selling as simply doing everything you can to improve the customer’s current condition.

>> Review of Last Week

THEY’RE GONNA DO A DEAL!… The politicians in Washington didn’t actually make a deal to end the budget stalemate, but there were indications they may be getting closer to a resolution. Investors got their hopes up after House Republicans proposed extending the debt limit by six weeks to make time for a deeper discussion of spending. This sparked a big enough jump in stocks on Thursday and Friday that the Dow and the S&P 500 registered their first weekly gains in three. Refusing to join the party, the tech-heavy Nasdaq dropped a tad after five straight weeks of gains.  

Nevertheless, no agreement was reached and the government remained partially shut down. What economic data we got wasn’t great. Weekly Initial Unemployment Claims soared to 374,000, up 66,000, the most since last November. FOMC Minutes from the Fed’s last meeting confirmed that the decision to delay tapering their bond purchase program was motivated by concerns it would hurt the housing recovery and the still weak jobs situation. Finally, was anyone surprised to see preliminary Michigan Consumer Sentiment drop to its lowest reading in nine months?

The week ended with the Dow up 1.1%, to 15237; the S&P 500 up 0.8%, to 1703; but the Nasdaq was down 0.4%, to 3792.

As investors became more hopeful about a Washington deal, money moved from the safe haven of bonds into riskier assets. But bond price drops were modest. The FNMA 3.5% bond we watch ended the week down .22, at $101.03. National average mortgage rates barely budged in Freddie Mac’s Primary Mortgage Market Survey for the week ending October 10. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information.

DID YOU KNOW?
…  A research firm reported that homeowners saw their equity increase by $571 billion during Q2 of this year and by $2.2 trillion over the past year.

>> This Week’s Forecast

INFLATION HOLDS, MANUFACTURING AND HOME BUILDING GAIN, DEBT LIMIT DEADLINE… The government shutdown could delay some economic data, as noted below. Economists forecast inflation in check for September, as measured by the CPI and Core CPI (excludes volatile food and energy prices). Manufacturing should grow slower in October in the regions reported by the New York Empire and Philadelphia Fed Indexes, while Housing Starts and Building Permits are both predicted up in September. This Thursday is when the Treasury says it will run out of borrowing authority if Congress doesn’t raise the debt limit.

Happy Columbus Day! The stock market is open but the bond market is closed.

>> 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 Oct 14 – Oct 18

 

 Date Time (ET) Release For Consensus Prior Impact
Tu
Oct 15
08:30 NY Empire Manufacturing Index Oct 4.5 6.3 Moderate
W
Oct 16
08:30 Consumer Price Index (CPI) (delayed) Sep 0.1% 0.1% HIGH
W
Oct 16
08:30 Core CPI (delayed) Sep 0.1% 0.1% HIGH
W
Oct 16
14:00 Fed’s Beige Book Oct NA NA Moderate
Th
Oct 17
08:30 Initial Unemployment Claims 10/12 330K 374K Moderate
Th
Oct 17
08:30 Continuing Unemployment Claims 10/5 2.900M 2.905M Moderate
Th
Oct 17
08:30 Housing Starts (likely delayed) Sep 915K 891K Moderate
Th
Oct 17
08:30 Building Permits (likely delayed) Sep 932K 918K Moderate
Th
Oct 17
09:15 Industrial Production (delayed) Sep 0.3% 0.4% Moderate
Th
Oct 17
09:15 Capacity Utilization (delayed) Sep 78.0% 77.8% Moderate
Th
Oct 17
10:00 Philadelphia Fed Index Oct 7.0 22.3 HIGH
Th
Oct 17
11:00 Crude Inventories 10/12 NA 6.807M Moderate
F
Oct 18
10:00 Leading Economic Indicators (LEI) (likely delayed) Sep 0.6% 0.7% Moderate

 

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… The nominee for Fed chair is expected to keep the Funds Rate at its super low level through most of next year. 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
Oct 30 0%–0.25%
Dec 18 0%–0.25%
Jan 29 0%–0.25%

Probability of change from current policy:

After FOMC meeting on: Consensus
Oct 30      <1%
Dec 18      <1%
Jan 29      <1%