Home Lender Rates Moving Lower

Courtesy of Gregg Mullery Newsletter “IT’S A BEAUTIFUL THING, DIVING INTO THE COOL CRISP WATER.” Olympic Gold Medalist Dawn Fraser. Diving may be a beautiful sport at the Olympics, but it’s not a beautiful thing to watch in the Bond market. And that’s exactly what happened last week, as Bonds dove to their worst levels so far this year.
So what caused this belly flop to occur? Once again, inflation was the big culprit. While Bonds and home loan rates did begin the week in rally mode after the Federal Reserve announced that it authorized Fannie Mae and Freddie Mac to borrow directly from the Central Bank if they need additional capital, this confidence boost in the markets was short lived on the heels of important inflation reports.
On Tuesday, the Producer Price Index (PPI) report, which measures prices of goods at the wholesale level, revealed that the year-over-year PPI soared in June, marking the highest year-over-year rate since 1981. Also on Tuesday, the Retail Sales report, which measures the total receipts of retail stores, showed that retail sales increased much less than forecast. This may mean that the boost in sales received from the tax rebates may already be fading as consumers are focusing on paying for essentials…something that Wednesday’s news seemed to confirm.
What was Wednesday’s news? The important Consumer Price Index (CPI) report, which measures prices paid by consumers like us. It showed that prices overall are up 5% from a year ago, the biggest year-over-year rise since 1991. This probably comes as no surprise as you look at your own monthly expenses, particularly the amount you’re likely spending these days on groceries and at the gas pump.
Bond prices and home loan rates continued to worsen through the week as no other news or reports could help them shift course. With inflation and tough overhead technical resistance proving to be strong competitors against any improvement, home loan rates generally ended the week around .375 percent worse than where they began.
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Also this week will come a look at Durable Goods Orders, which is simply a measure of how many “durable” or non-disposable goods have been purchased during the previous month. Durable goods are those products which are expected to last longer than three years, such as televisions, golf clubs, furniture, office equipment, and cars. With consumables like food and energy taking such a bite out of most people’s budget, it will be interesting to see the level of buying for these types of items…it wouldn’t be surprising to see it at somewhat low levels. Additionally, a look at Consumer Sentiment will arrive, with a read on how positive – or not – consumers are feeling about their current and future economic conditions.
Remember when Bond prices move higher, home loan rates move lower…and vice versa. And this week, Bond prices took a very steep dive indeed, causing home loan rates to worsen. The chart below shows how Bonds were pushed sharply lower by the news of the week, and an inability to defeat a strong overhead ceiling of resistance at the 200-day Moving Average. If this week’s news isn’t Bond friendly, Bond prices could continue their dive lower, and cause home loan rates to worsen further still…but some negative economic news could pull money out of Stocks and into Bonds, give Bonds a boost higher, and help home loan rates regain some lost ground.
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