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Archive for FED meeting

Inflation Puts Pressure On Financial Markets

Stocks and bonds are both down today on worse than expected inflationary news.

Mortgage bonds are being hit today by worse than expected inflation reported in the Personal Consumption Expenditure (PCE) report.  Even though bonds are off of their lowest levels of the day, the figures show that inflation for the month of June was up 0.8% – the highest single month increase in 27 years.

As we have discussed before, what is bad for bonds is usually good for stocks, but not inflation.  Traders on both sides of the isle hate inflation, so the trend is likely to be down in both markets today.

The FED is meeting today and will be anouncing the results of its meeting at 2:15 PM EST tomorrow.  The markets are currently predicting a 93% chance that short term lending rates will not change due to current market conditions.

Based on the current state of the markets, it looks like floating your rate in the short term is the best course of action to see how the markets continue to react to today’s economic news.  If you will be closing soon, I recommend locking to avoid possible negative impacts.

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Inflationary Concerns Holding Back Mortgage Bonds

We had a lot of news out today, all of which was bad.  The Retail Sales report came out today at a 0.1% rise over last month.  This is considerably lower than the projected 0.4% increase, and the lowest increase since the February Retail Sales Report.

The Producer Price Index (which measures wholesale inflation) came in at 1.8% on a seasonally adjusted basis in June.  This is not good news for inflation, and as the biggest gain since November 2007, it will continue to chip away at investor confidence in the mortgage bond sector.

FED Chairman Ben Bernanke will be delivering his semi-annual monetary outlook to the Senate Banking Committee today.  The expectations for his prepared speach are already creating concerns with investors and causing a sell off in stocks based on the assumption that continued problems with growth and unemployment will not ease in the near future.

All of this leads to a less than stellar environment in mortgage bonds.  Normally, a stock sell off is good news for the bond market and mortgage rates in general.  But with continued uncertainty about inflation, it is having little or no affect on bonds.  My suggestion would be to lock your rate at current levels to protect against future loss on any active mortgage loan you have working.

Tuesday June 24, 2008

Dow Chemical bumps prices 25% across the board.

There are a few items in the news today that are affecting the markets.  Dow Chemical has decided to raise prices for their products by 25% across the board.  This is due in large part to the continued rise in energy costs, among other things.

Mortgage bonds are up slightly this morning as money from the stock market is filtered over to bonds on news that shipping giant UPS has issued a profit warning for the quarter.  This of course means that fewer people are shipping, and the assumption would be that fewer goods are being sold because of this warning, leading to a rush for traders to look for less volitility in bonds.

While this by itself would be good news for bonds and mortgage rates, the price of oil continues to rise and look at new highs which is bad for bonds.  Overall, the markets will very likely be flat today as everyone holds their breath to see what happens with the FED meeting beginning today, and wrapping up tomorrow at 2:15 ET.

In addition, the Consumer Confidence report for June came out at 50.4, well below expectations of 56.0.  It is not surprising that consumers are nervous, but for the report to come in 5.6 points below expectations is significant.