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City: BRADENTON
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City: BRADENTON
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INFO THAT HITS US WHERE WE LIVE Last week saw September Housing Starts UP 0.3% to an annual rate of 610,000 units, well ahead of the expected 580,000 unit pace. Even better, starts are UP 4.1% over a year ago. Interestingly, the September gain was totally driven by a healthy 4.4% rise in single family starts, while multi-family starts dropped 9.7%. But multi-family starts are volatile month to month, and are actually up 100.0% compared to a year ago, while single family starts are off 10.8% during the same time frame.
Builders remain cautious, as new Building Permits for September dropped 5.6%, to a 539,000 annual rate. This number of course reflects plans for builder activity a few months out. Nonetheless, the National Association of Home Builders (NAHB) reported builder confidence rose in October for the first time in five months. This brings it to a level not seen since June. The NAHB's chief economist feels the new home market is now past the quiet period that followed the expiration of the home buyer tax credits and the summer slowdown in the economy.
>> Review of Last Week
UP WITH VOLATILITY...It was not a quiet week on Wall Street, with a big move down in stock prices, which then came back up. But the markets did close up four out of the five days, so the week ended with all three major indexes ahead once again. Investors focused on a pile of pretty good corporate earnings results, but there were some less than stellar economic reports to get through too.
Industrial Production was off 0.2% in September, below estimates, though production is up at a 4.9% annual rate for the last six months. Capacity Utilization also dipped down to 74.7% for September, although it's still 6.5 percentage points above the low it hit back in June 2009. Countering these figures, the Philadelphia Fed Index for manufacturing in that region was back into positive territory. Leading Economic Indicators were up 0.3% for the month and weekly jobless claims fell a bit, though they're still well above 400,000.
The good news came in corporate earnings, with more than 100 S&P 500 companies reporting including 12 of the Dow components. The financials did well, with 21 out of 27 reporting better than expected earnings per share. In the tech sector, Apple and IBM also did nicely in the earnings department. Coca-Cola, Caterpillar, and airlines also showed gains. Even though the recovery has slowed, the vast majority of public companies continue to make good profit numbers.
For the week, the Dow ended UP 0.6%, to 11132.56; the S&P 500 was also UP 0.6%, to 1183.08; and the Nasdaq was UP 0.4%, to 2479.39.
Trading ranges in the bond market didn't go too wide, as investors stayed interested enough to keep prices up. The FNMA 30-year 4.0% bond we watch ended UP 12 basis points for the week, closing at $103.12. Freddie Mac's weekly survey showed national average mortgage rates for most mortgages remaining at historically low levels.
>> This Week’s Forecast
NOTHING SCARY...As we head into Halloween this week, it looks like nothing too frightening will be reported on the economic front. Monday's Existing Home Sales are projected up for September, just like September New Home Sales are expected to report come Wednesday. Friday, we get the Advanced Q3 GDP numbers, which economists are forecasting to be modestly positive.
Consumer Confidenceon Tuesday and Michigan Consumer Sentiment on Friday are both projected to be up a tiny bit. Friday's Employment Cost Index should continue with modest growth, while the Chicago PMI is predicted to show a small decline in manufacturing in that region of the country.
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of October 25 – October 29
|
Date |
Time (ET) |
Release |
For |
Consensus |
Prior |
Impact |
|
M |
10:00 |
Existing Home Sales |
Sep |
4.25M |
4.13M |
Moderate |
|
Tu |
10:00 |
Consumer Confidence |
Oct |
49.0 |
48.5 |
Moderate |
|
W |
08:30 |
Durable Goods Orders |
Sep |
1.7% |
–1.3% |
Moderate |
|
W |
10:00 |
New Home Sales |
Sep |
295K |
288K |
Moderate |
|
W |
10:30 |
Crude Inventories |
10/23 |
NA |
0.667M |
Moderate |
|
Th |
08:30 |
Initial Unemployment Claims |
10/23 |
455K |
452K |
Moderate |
|
Th |
08:30 |
Continuing Unemployment Claims |
10/16 |
4.418M |
4.441M |
Moderate |
|
F |
08:30 |
GDP–Advanced |
Q3 |
2.0% |
1.7% |
Moderate |
|
F |
08:30 |
GDP Chain Deflator–Advanced |
Q3 |
2.0% |
1.9% |
Moderate |
|
F |
08:30 |
Employment Cost Index |
Q3 |
0.5% |
0.5% |
HIGH |
|
F |
09:45 |
Chicago PMI |
Oct |
57.50 |
60.40 |
HIGH |
|
F |
09:55 |
Univ. of Michigan Consumer Sentiment–Final |
Oct |
68.0 |
67.9 |
Moderate |
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months As economists debate how big the second round of quantitative easing (QE-2) will be, they're all in agreement that the Fed Funds Rate will stay at its rock bottom level for quite a bit more time. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.
Current Fed Funds Rate: 0%–0.25%
|
After FOMC meeting on: |
Consensus |
|
Nov 3 |
0%–0.25% |
|
Dec 14 |
0%–0.25% |
|
Jan 26 |
0%–0.25% |
Probability of change from current policy:
|
After FOMC meeting on: |
Consensus |
|
Nov 3 |
<1% |
|
Dec 14 |
<1% |
|
Jan 26 |
<1% |
>> Market Update
>> Review of Last Week
A BIT OF A BREATHER... Investors on Wall Street took a rest last week from bidding stock prices up the way they had earlier in the month. Performance of the major market indexes was uninspiring, though slippages were all less than a half a percent. But performance for the month was impressive. The broad-based S&P 500 index, favored by professional investors, shot up 8.8% for September, its best monthly gain since April 2009 and its best September reading in over 70 years. >> This Week’s Forecast
WHERE WE'RE GOING WITH HOMES AND JOBS...The week begins with August Pending Home Sales, which count signed contracts and therefore tell us what will be happening with closings a few months out. Unfortunately, the consensus expects the August reading to be down a bit from July. But September ISM Services is expected to show the non-manufacturing sector still indicating expansion, with a reading just over 50. >> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
>> Federal Reserve WatchForecasting Federal Reserve policy changes in coming months There's been a lot of talk about the Fed's readiness to provide a second round of quantitative easing (QE-2) if needed. This has led economists to believe that the Fed Funds Rate will remain at its rock bottom levels for quite some time. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same. Current Fed Funds Rate: 0%–0.25%
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INFO THAT HITS US WHERE WE LIVE Last week's housing market data centered on Standard & Poor's S&P/Case-Shiller Home Price Index. This showed home prices UP in July for the fourth month in a row, but the pace of their gain had slowed from prior months. With the expiration of the government's home buyer tax incentives, some observers wonder if the S&P/Case-Shiller will keep moving up. The composite 20-city index, a broad measure of U.S. home prices, showed a 3.2% increase year over year, the sixth month in a row it posted an annual gain.until three different indicators hit bottom: sales, building
activity, and prices. Today’s report on existing home sales
signals that sales have likely bottomed already. The number
of existing homes sold increased 5.1% in February. In
addition, the number of homes for sale increased for the first
time since July. This is consistent with marginal sellers,
previously too scared to even dip their toes in the housing
market, now sensing an imminent turn in the market,
particularly in metropolitan environments where many of the
price declines have been the strongest. Most of the increase
in inventory in February is attributable to condos/coops.
Although the median home price is down 15.5% versus last
year, this is a smaller year-ago drop than last month (when it
was -17.5%). In terms of the other housing indicators, we
expect home building to bottom late this year and prices to
bottom a few months later. However, it is also important to recognize that much of the remaining pain in the housing market will be concentrated in five states: California, Florida, Arizona, Nevada.
Positive economic indicators for the week included a better-than-expected retail sales number for February. It was down just 0.1% overall, but taking out auto sales, retail was UP 0.7%, following a 1.7% GAIN in January. Consumer sentiment also came in a tick up for the month. Fear seems to be abating. On Friday, White House economic advisor Larry Summers said it was indeed encouraging to see signs of a rise in consumer spending.
Best of all was the encouraging financial news. Citigroup said it had a profit the first two months of the year and won't need more TARP money. JPMorgan was also profitable in January and February. Some economists see this as early evidence that monetary policy is having some traction. In Washington, Barney Frank, who chairs House Financial Services, said he thinks the SEC will soon reinstate the uptick rule, which would make it harder to short financial stocks.His committee also held its hearing on mark-to-market accounting and seems to favor temporarily suspending the rules. They gave SEC and FASB accountants three weeks to come back with a plan. This is positive news because many experts feel adjusting mark-to-market is vital to fixing the banking system. It should ease capital concerns at banks, giving them increased capacity to lend, which is central to the recovery.
The Dow zoomed UP for the week 9.0%, to 7223.98; the S&P 500 went UP 10.7%, to 756.55; and the NASDAQ almost matched it, going UP 10.6%, to 1431.50.
With stocks enjoying a great week, you'd expect bonds to get hammered, but things weren't so bad. In spite of China's reservations about Treasuries, the price of the benchmark 10-year Treasury dropped just a tad. So its yield, which runs counter to price, only inched up to 2.890%, still comfortably under the 3% threshold. This bodes well for mortgage rates continuing at attractive levels.
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