News

 "THERE IS NO BARRIER TOO HIGH, NO VALLEY TOO DEEP... NO DREAM TOO EXTREME, NO CHALLENGE TOO GREAT" ~ Charles Swindoll And that motivating phrase was a great motto for last week, as both Bonds and home loan rates ended up being greatly challenged as they dreamed of breaking through technical barriers to attempt some improvement. Lots of intra-week action ensued - but when the dust settled, Bonds and home loan rates rallied in the face of challenges and ended the week very close to where they began.

Bond prices and home loan rates started the week to the upside, as Wachovia announced they were removing their CEO and Stocks faced some selling pressure on the news, moving money into Bonds and helping rates improve. But the rally was very short lived, as Wednesday's "unofficial" Employment Report by giant payroll processor ADP indicated 40,000 new private sector jobs were added in May...and while this good economic news gave Stocks a boost, it pulled money right back out of Bonds and caused home loan rates to worsen. Thursday's positive economic news that unemployment claims for the week were lower than expected caused Bonds and home loan rates to worsen even further, as traders began to speculate on what the "official" Jobs Report by the Department of Labor would contain.

And on Friday morning, along came the big enchilada, the monthly Jobs Report. The Unemployment Rate increased to 5.50%, up from 5% last month - the largest jump since February of 1986. This was much worse than the market expected. And remembering that bad economic news tends to be bad news for the Stock market, but good news in turn for the Bond market, the news was positive indeed for Bonds and home loan rates - helping them to end the week relatively unchanged.

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Forecast for the Week

So we know that employment numbers were the big movers and shakers for the financial markets and home loan rates last week. What's in store for the week ahead, and what could drive more market action?

Keep your eye out for the Retail Sales Report, which will be released on Thursday. The Retail Sales report is a measure of the total receipts of retail stores, and changes in these numbers are closely followed as a timely indicator of broad consumer spending patterns. Recent numbers haven't been too bad - consumers seem to still keep spending away. But, will this week's report show that inflation and high oil prices are finally taking their toll on consumer pocketbooks? A strong Retail Sales Report would be good for the Stock market - which stands to reason, as it would indicate continued consumer confidence and dollars being poured into the economy. But a strong Retail Sales Report would be bad news for Bonds and home loan rates, which benefit from weak economic news.

Sure to be a market mover is Friday's Consumer Price Index report, which gives a read on inflation at the consumer level - that is, how much more expensive are goods and services this month over last month? CPI is a widely watched inflation indicator, and will definitely make headlines. Inflation tends to be bad news for both Stocks and Bonds, so if the report indicates inflation is heating up, this could cause Bond pricing and home loan rates to worsen in response.

Remember when Bond prices move higher, home loan rates move lower...and vice versa. And as you can see in the chart below, Bonds were challenged to improve and break above a strong technical barrier at the 200-day Moving Average....only to end the week being forced below it once again. This is a very important "line in the sand," so I'll be watching closely this coming week - as always - to see if the news of the week will help Bonds break above this important barrier, or remain below it.

Chart: Fannie Mae 5.5% Mortgage Bond (Friday Jun 06, 2008)

 

The Mortgage Market View...

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The Week's Economic Indicator Calendar

 Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.

Economic Calendar for the Week of Jun 09 – Jun 13

Date		ET	Economic Report	For	Estimate	Actual	Prior	Impact
Tue. June 10		08:30	Balance of Trade	Apr	-$59.5B		-$58.2B	Moderate
Wed. June 11		10:30	Crude Inventories	6/07	NA		-4802K	Moderate
	Wed. June 11	02:00	Beige Book					Moderate
Thu. June 12		08:30	Jobless Claims (Initial)	6/07	371K		357K	Moderate
	Thu. June 12	08:30	Retail Sales	May	0.6%		-0.2%	HIGH
	Thu. June 12	08:30	Retail Sales ex-auto	May	0.7%		0.5%	HIGH
Fri. June 13		08:30	Core Consumer Price Index (CPI)	May	0.2%		0.1%	HIGH
	Fri. June 13	08:00	Consumer Price Index (CPI)	May	0.5%		0.2%	HIGH
	Fri. June 13	08:30	Consumer Sentiment Index (UoM)	Jun	57.5		59.8	Moderate