Last week in review (August 13 - 17, 2012)
Stocks and bonds have been competing for investment dollars, as the economic reports continue to deliver mixed results. Read on for details
Table Source: Mortgage Success Source
Several reports last week delivered good news for our economy. The headline Retail Sales number came in at 0.8%, much higher than expectations. Building permits jumped to their highest level in four years and Consumer Sentiment also improved, coming in higher than expectations. In addition, inflation at the consumer level was tame. This is typically a good sign for bonds, as inflation hurts the value of fixed investments like bonds, which means tame inflation is also good for home loan rates since they are tied to mortgage bonds. It is important to note that the Producer Price Index did show that inflation at the wholesale level was higher than expectations.
However, not all the news was positive for our economy. Despite the improvement in building permits, housing starts came in worse than expected. There was also negative news on the manufacturing front, from both the Philadelphia Fed Index and the Empire Manufacturing Index, the latter being reported at a disappointing -5.85 versus the 5.0 expected. This was the first contraction in the Index in nine months.
How did all of this news impact Bonds and home loan rates? Typically, if the economic reports are good, stocks go higher because the economy is improving. Meanwhile, weak economic news usually helps bonds and home loan rates, as investors move their money out of stocks and into safer investments like bonds. But recently, stocks have been improving even when there is weak economic news, as negative news gives the Fed cause to provide additional stimulus for the economy (known as Quantitative Easing, or QE3).
However, there are still many factors that should help bonds and home loan rates remain near their historic best levels. Many experts believe we are in or near a recession, plus there is continued uncertainty out of Europe. This will likely add to the safe haven trade into our Bond market, helping home loan rates in the process.
The bottom line is that home loan rates remain near historic lows and now is a great time to consider a home purchase or refinance.
Forecast for the Week
Housing and manufacturing news will be front and center in this week’s economic reports:
- Existing Home Sales and New Home Sales will be released on Wednesday and Thursday, respectively.
- Initial Jobless Claims will be released on Thursday as usual. Last week’s data came in slightly below expectations, which helped bring the average over the past month to the lowest level since late March. However, the number was still too high, and it remains a stark reminder that the US economy isn’t out of the woods yet.
- Finally, this week rounds out with manufacturing news in the form of the Durable Goods Orders Report on Friday. Durable Goods Orders are considered a leading indicator of manufacturing activity. The markets will be watching this report, especially after last week’s Philadelphia Fed Index and Empire State Index readings.
Remember: Weak economic news normally causes money to flow out of stocks and into bonds, helping bonds and home loan rates improve, while strong economic news normally has the opposite result.
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