Market Reports
A Mortgage Update from Jay Skwierawski for the week of March 16
Hello Everybody!
And on the seventh day...
Sunday.
The day of rest. The day that nothing ever happens in the markets. Well, almost never. Today would be different!
Today, J.P. Morgan Chase, in a move orchestrated with the help of the Federal Reserve, announced that it would purchase Bear Stearns, the Wall Street brokerage firm that has been in business since 1923, for $2 per share. This follows Chase's announcement on Friday that it was giving a short term loan to Bear Stearns to help it avoid a bankruptcy filing. That announcement wasn't enough, and rumors were flying that Chase would take over Bear Stearns, and that's what happened today. As I am writing this on Sunday evening, markets overseas were tumbling on the news, as it increased fears of a credit meltdown in the United States.
At the same time that Chase announced that it was buying Bear Stearns, the Fed was up to it's own tricks, with a surprise 1/4% cut in the Fed's Discount rate. The discount rate is the rate that member banks pay the Fed for funds they borrow directly from the Fed. At the same time, the Fed will now allow large financial institutions that are not normally allowed to borrow from the Fed to do so. This, hopefully, should make credit more readily available. The Fed will most likely drop the Fed Funds rate as soon as tomorrow, one day prior to the next meeting of the Fed's Open Market Committee, the body that governs short term interest rates. An emergency cut in the Fed Funds rate would help to prevent a major sell-off in world stock markets, including our own.
Buckle up, it looks like we're in for a bumpy ride this week!
This comes after a week when we actually saw mortgage rates drop a little bit from where they started the week. For the most part, the economic reports last week were "mortgage friendly":
Crude Oil inventories in the U.S. rose, this could mean lower oil and gas prices in the future
Retail Sales, and retail sales excluding autos, both came in substantially lower than expected - is the media finally getting to the consumers?
First time unemployment claims came in slightly lower than expected, but still high
The consumer price index (CPI) and the core CPI both came in much better than expected at "flat" for the month - what inflation? This could certainly leave the door open for a 3/4% cut by the Fed on Tuesday when they meet.
Consumer sentiment came in about as expected, at a very low level
Other news out last week included the Chase/Bear Stearns news and the news that another investment fund that invests a lot in mortgage backed securities was having trouble staying afloat.
This week will bring a slew of economic reports that are all market movers. Combine those reports with a Federal Reserve meeting, chaos in world stock markets, questions about the stability of the credit markets and a short work week and its bound to be wild, wild, wild!
Here's what news is coming out this week and it's typical impact on mortgage rates:
It all starts tomorrow.
Monday - Empire State Index, the measure of the economy in the New York area. (Moderate)
Monday - Industrial Production, the measure of goods produced in the nation's factories were last month. (Moderate)
Monday - Capacity Utilization, how well those factories used their resources last month. (Moderate)
Tuesday - Producer Price Index (PPI) and Core PPI (less food and energy), the measure of inflation at the wholesale level (Moderate)
Tuesday - Housing Starts, how many new homes were actually started last month? (Moderate)
Tuesday - New Housing Permits, how many permits were taken out to start new houses last month? (Moderate)
Tuesday - At 1:15pm, Central Time, the Fed will announce their interest rate decision from their FOMC meeting (HIGH)
Wednesday - Crude Oil Inventories, are high gas prices forcing consumers to cut back on gas purchases? (Moderate)
Thursday - Philadelphia Fed Index, a measure of the economies on the East coast (HIGH)
Thursday - First time unemployment claims - how many people lost their jobs last week, how many continued to look for jobs last week? (Moderate)
Thursday - Leading Economic Indicators - a measure of how the economy might behave in the future (Moderate)
As I said, it's going to be a very busy week. Be sure to watch for any SPECIAL ALERTS from me for breaking news on the mortgage and interest rate front.
The candlestick chart above shows the movement in the mortgage bond market for the past 90 days, with the most recent days on the right side. Keep in mind a few things - green is good, a rising trend is good and long bars indicate a very volatile market, which is what we have been in lately.
Have a great week!
Jay Skwierawski
President
First Sterling Mortgage Services, LLC
737 North Michigan Avenue, #1900
Chicago, IL 60611
312.268.7601
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