Money Market Recap and Forecast
July 26th, 2010
Written by Frost Mortgage
Categories: Frost Mortgage Monday, Monday Money Market Recap & Forecast
In spite of the U.S. Homebuilders confidence index falling to 14 from 16 — the lowest it’s been since April 2009 — last Monday was a tough one for U.S. Treasuries. The prospect of upbeat earnings sent stocks up and money left bonds, but they made up for it on Tuesday.
The report on housing starts and building permits for June came in far below forecasts. Starts fell 5.0% to an annual rate of 549,000 — the lowest in eight months. Building permits actually rose 2.1% due to a 20% surge for multi-family units. But single family permits plunged 3.4% to an annual rate of 421,000 — the worst since April 2009.
This kept buying in Treasuries heavy in the morning, but Wall Street recovered from an early pounding, taking some allure from bonds. Nevertheless, the 10-year yield, which moves inversely to price, closed at 2.93%.
Fed Chairman Ben Bernanke’s testimony on monetary policy before Congress on Wednesday ignited strong buying in bonds. His glum assessment of the economy included phrases stating that risks for growth are “weighted to the downside,” financial conditions are better but “less supportive of economic growth,” and his use of the term “unusually uncertain” to describe the economy kept bond pits active.
Thursday’s reports should have supported buying in Treasuries, but they couldn’t compete with a 200-point gain in the Dow Jones. First-time jobless claims for the week ended July 17 rose by a stronger-than-forecast 37,000 to 464,000.
Existing home sales in June fell by 5.1% to an annual rate of 5.37 million units from 5.66 million in May. These numbers, however, beat expectations, which made them acceptable to Wall Street. There was good news; year-over-year sales rose 9.8%, but so did inventories. They climbed 2.5% to an 8.9-month supply.
Separately, the index of leading economic indicators, which assesses economic conditions six to nine months ahead, fell by a weaker-than-expected 0.2% versus May’s 0.5% gain. This report is not much of a market mover.
There were no reports released Friday. Treasuries opened under slight selling pressure, while Wall Street was mixed but holding close to unchanged.
The Mortgage Bankers Association finally had some good news. For the week ended July 16, refinances were up 8.6%, the highest the index has been since May 2009. And purchase apps rose 3.4%, with the MBA citing the drop in mortgage rates as responsible for the increases.
This week has at least one influential report scheduled every day, beginning with new home sales on Monday. Analysts are expecting sales for June to have risen to an annual rate of 325,000 units — up from 300,000.
Tuesday the Conference Board releases its consumer confidence index for July. It is expected to continue its recent slide to 51.5 from 52.9. This is good news for bonds, as worried consumers do not spend.
Durable goods orders for June is out Wednesday, and it’s expected to show a big improvement. Forecasters have it rising 1.25% from May’s 0.6% decline. In the afternoon the Fed beige book, which looks at economic conditions in the nation’s 12 federal districts, will be released. An improving picture has been known to cause selling in bonds, while slow or no growth could ignite buying. Only the Fed knows which way it will go.
Three economic releases Friday could influence trading. First, we get the advance look at 2ndquarter GDP. It’s expected to show economic growth at 2.5%, which would be slightly below the 1stquarter’s 2.7% final. But the advance number is subject to two revisions, which could change the outcome — or not.
The Chicago PMI index on July manufacturing conditions is also predicted to fall. Economists see it dropping to 57.9 from 59.1. Any number over 50, however, indicates sector expansion.
The economic seers are expecting the final July consumer sentiment survey from the University of Michigan to rebound — a little. Two weeks ago it fell to an all-time low of 66.5. They see it rising to 67.5, which could put slight selling pressure on Treasuries.
With more earnings reports due out next week, there’s no way to tell what effect they will have on bonds. But they will wield influence — one way or the other.
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