Marketline Mortgage: Money Market Recap and Forecast

MMRecap for November 24^th

Last week we had a marathon of 17 economic reports released. Monday kicked off with November’s New York Empire State Manufacturing index. The index rose to 10.2. Not bad, considering that the previous report came in at 6.2.

Twin reports, industrial production and capacity utilization, both disappointed. Production fell 0.1% from the +0.8% from the prior report, while capacity utilization edged down to 78.9% from 79.2.

When the markets closed, results were mixed, with no big winners or losers. The yield on the 10-year note rose 2 basis points to close at 2.34%.

On Tuesday the producer price index came out, and we actually saw some movement in October. It rose 0.2% from -0.1% in September. The PPI core, which eliminates food and energy prices, also moved up to 0.4% from 0.0%. The final report came from the NAHB; its index jumped to 58 from 54 in October. That was good news.

Wednesday was a relatively calm day, as only two reports were published -- building permits and housing starts for October. Housing starts fell to an annual rate of 1009K, likely weather-related. This was down from the 1038K starts in September. Building permits had a more impressive result, as they jumped to an annual rate of 1080K -- an increase of 49,000 units from September.

There were no expectations regarding Wednesday’s FOMC meeting, but it sounded like it might have gotten a little dicey. The whole idea behind QE2 was to lower interest rates as well as lowering the percentage of unemployed. Low interest rates did perk up the economy, but the unemployment rate has a ways to go, and some FOMC members seem to feel the cut off was premature. Either way, the Fed will make rate hikes in the future -- likely beginning in 2015.

Thursday featured seven reports, all close to predictions. First-time jobless claims for the week ended Nov.15 led off at 291K, 2,000 fewer claims than the previous week. Continuing claims fell by 73K to come in at 2330K for the week ended November 8.

Consumer price indices for October followed. The bare-bones CPI dipped to 0% from 0.1% in September. Meanwhile, the core CPI, which eliminates food and gas prices, edged up 0.2% from 0.1% the previous month. Still no inflation worries here!

The next report showed existing home sales jumping to a higher-than-expected annual rate of 5.26M units in October; that’s 80,000 homes sold.

If the Philly Fed Index was like any other report, it would have set the markets on fire. It is an important report concerning manufacturing in the eastern seaboard area, but it’s not in the same class as Chicago, for instance. However, in November the index rose to 40.8 from 20.7. This is a very notable increase which shows that manufacturers are humming along. This is a good sign for the economy.

The final report for the week was leading economic indicators for October. It rose to 0.9% from 0.7%, but it has zero impact on the market.

There were no economic reports issued Friday, but there was news that sent stocks to record highs, again. The feared recession in Japan is now a reality, but a surprise rate cut by China’s central bank, the first in more than two years, sent the European markets up; the U.S. markets followed.

Despite the short Thanksgiving week, there are several reports being released. No reports come out today, and tomorrow we have just a few, starting with the second estimate of the Q3 GDP. The markets expect that report to come in at 3.3%, while the briefing forecasters are thinking more along the line of 3.0%. This compares with the 3.5% reported from the prior report issue. Next in line is the Case-Shiller 20 city index for September. The prognosticators are expecting a slight downturn in this number to anywhere between 4.2% and 4.6% compared with the 5.6% that was reported previously. We also get the consumer confidence report, which is looking good right now. The report is expected to show our confidence level rising to 96.0 in November, up from 94.5 from October.

Wednesday we’ll get some reports that normally come out on Thursday, in addition to Wednesday’s reports. We’ll start the day with the initial and the continuing jobless claims reports. Initial claims are expected to go down, a result of temporary employment during the holiday shopping season. It is anticipated that initial claims will be at 285K for the week ended November 22, down from the 291K the week before. Continuing claims may go up to 2350K for the week ended on November 15, compared to the 2330K the week prior.

The durable orders report for October is next. A 0.7% decrease is expected. This follows a 1.3% decrease in September, so it’s a little bit better. The durable goods ex-transportation report follows and is expected to show an increase to 0.3%, which is better than the -0.2% decrease from the previous report.

The personal income report for October looks like we might be making a little more money. The forecasters are predicting this number to rise between 0.4% and 0.5%, compared to 0.2% from the prior statement. Personal spending is also predicted to be on the upswing, showing that we might be spending as much as 3% more in October.

The Chicago PMI report comes out next and covers November. This report might be a little less than the previous report, coming in around 65.0 compared with the 66.2.

Continuing on Wednesday, the final University of Michigan sentiment report for November is released. Only minor changes are expected, as the report might come in at 90.5 versus the 89.4 on the previous report.

The next announcement is on new home sales for October. There’s a huge discrepancy in predictions from the “experts.” The markets are anticipating an increase to 469K over the 467K from September, while the briefing forecasters are predicting a major decrease to 450K new homes sold. It’ll be interesting to see the actual result here. Pending home sales also demonstrate another discrepancy between forecasters. The markets would like to see pending home sales up by 0.8% while the briefing guys are thinking more like 0.5%. Still, these numbers are an improvement from the 0.3% last reported.

We want to wish all of you a Happy Thanksgiving. Be safe!