Market Watch

by : Sharon Campbell

QUOTE OF THE WEEK… “Life is easy to chronicle, but bewildering to practice.” —E.M. Forster, British writer

INFO THAT HITS US WHERE WE LIVE… What’s easy to chronicle is the continuing gain in home prices. One real estate research firm’s index of home prices was up 12.4% year-over-year in August. This index includes distressed sales, which rebounded more, having started at lower levels. But extracting those sales from the measure still puts prices up 11.2% for the year. A second real estate data firm reported national home prices up 10.9% annually in September. An economist from one of the firms predicts, “moderate gains in home prices over the balance of this year.”

What’s bewildering is the federal government shutdown. It hasn’t hurt the housing market yet, as mortgage lenders are still taking applications, locking rates, processing, and closing. But home sales could suffer if the shutdown drags on.Bloomberg.com reports that mortgage applications could be held up because lenders won’t be able to verify Social Security numbers and access IRS tax transcripts, now common underwriting procedures. They also said the shutdown may delay mortgage-related activities at the Federal Housing Administration (FHA) and the Department of Agriculture. 

BUSINESS TIP OF THE WEEK
… Get to work an hour early. By starting when fewer people are around, you’ll avoid distractions and be more efficient. You might even pick up an extra hour for yourself at the end of the day.

>> Review of Last Week

SHUTDOWN SENSITIVE… The federal government shut down last Tuesday after politicians were unable to agree on a budget by midnight Monday. This left investors sensitive to the melodrama coming out of Washington, sending stocks up and down.For the week, the Dow and the S&P 500 ended lower, but the Nasdaq posted its fifth straight weekly gain. Things could go on a bit longer, as the budget is being tied to raising the debt ceiling. If that doesn’t happen, October 17 is the likely day of a default. Meanwhile, what economic data we got was mixed. 

The Chicago PMI and the ISM Index showed manufacturing growing a bit stronger than expected. But ISM Services missed its estimate, though still showed expansion. The government shutdown denied us the September Employment Report, but we did get some jobs data. The ADP employment index had a gain of 166,000 private payrolls, which economists say suggests a slight slowing in job growth. Weekly unemployment claims were up by 1,000, but stayed below recession and pre-recession levels and the four-week average fell to 305,000, its lowest level in more than six years.

The week ended with the Dow down 1.2%, to 15073; the S&P 500 down 0.1%, to 1691; but the Nasdaq was up 0.7%, to 3808.

The government shutdown had mixed impact on bonds, some issues booking modest losses, others posting small gains. The FNMA 3.5% bond we watch ended the week up .01, at $101.25. National average mortgage rates dipped for the third straight week, to their lowest level in more than three months, in Freddie Mac’s Primary Mortgage Market Survey for the week ending October 3. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up to the minute information.

DID YOU KNOW?
…  A credit bureau reported originations for home purchase loans were up about 30% in the second quarter of this year, indicating a strengthening housing market.

>> This Week’s Forecast

WHAT THE FED SAID BEFORE LAST MONTH’S SURPRISE… Beyond the Washington distractions, the week’s big focus should be Wednesday’s release of the FOMC Minutesfrom the Fed’s September 18 meeting. That’s when the central bank surprised everyone by announcing they would NOT begin tapering the bond buying they’ve been doing to support the economy. They simply didn’t feel the recovery was strong enough to stop and these Minutes may add some enlightening detail to that decision.

This week’s economic data should include Retail Sales, predicted to be off for September. Michigan Consumer Sentiment, which took a hit last month, is forecast to be down a bit more in October. However, the Producer Price Index (PPI) is expected to show wholesale price inflation still under control.

>> 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 7 – Oct 11

 Date Time (ET) Release For Consensus Prior Impact
Tu
Oct 8
08:30 Trade Balance Aug –$38.6B –$39.1B Moderate
W
Oct 9
10:30 Crude Inventories 10/5 NA 5.472M Moderate
W
Oct 9
14:00 FOMC Minutes 9/18 NA NA HIGH
Th
Oct 10
08:30 Initial Unemployment Claims 10/5 318K 308K Moderate
Th
Oct 10
08:30 Continuing Unemployment Claims 9/28 2.903M 2.925M Moderate
Th
Oct 10
14:00 Federal Budget Sep NA +$75.180B Moderate
F
Oct 11
08:30 Retail Sales Sep –0.1% 0.2% HIGH
F
Oct 11
08:30 Producer Price Index (PPI) Sep 0.2% 0.3% Moderate
F
Oct 11
08:30 Core PPI Sep 0.1% 0.0% Moderate
F
Oct 11
09:55 Univ. of Michigan Consumer Sentiment Oct 74.5 77.5 Moderate
F
Oct 11
10:00 Business Inventories Aug 0.2% 0.4% Moderate

 

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… The Fed Funds Rate isn’t expected to budge from its rock bottom level well into 2014. 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%