Daily market update

Greetings! Here's your Daily Commentary report compliments of Alan Russell & Princeton Capital! Call me today for current rates and market information at (650) 947-2296.           Thursday’s bond market has opened down sharply even though this morning’s economic data didn’t show too many surprises. The stock markets are following suit with sizable losses of their own. The Dow is currently down 208 points while the Nasdaq has lost 59 points. The bond market is currently down 22/32, pushing the benchmark 10-year Treasury Note yield to 2.79%. This should equate to an increase in this morning’s mortgage rates of approximately .375 of a discount point. Today’s three economic releases actually gave us mixed results. The most important of the three was July’s Consumer Price Index (CPI) at 8:30 AM ET. It revealed a 0.2% increase in both the overall reading and the core data that excludes more volatile food and energy prices. Those matched forecasts, meaning inflationary pressures rose slightly at the consumer level last month, but was within expectations. Therefore, we should consider the data neutral towards bonds and mortgage rates. The second report at 8:30 AM also came from the Labor Department, who announced that 320,000 new claims for unemployment benefits were filed last week. This was well below the 339,000 that was forecasted and a sizable drop from the previous week’s revised total of 335,000 initial claims. This indicates the employment sector strengthened last week, making the data negative for the bond market and mortgage pricing. However, this data is not the cause of this morning’s selling as it tracks only a single week’s worth of new claims, limiting its impact on the financial and mortgage markets. The good news came in July's Industrial Production report at 9:15 AM ET that showed output at U.S. factories, mines and utilities was unchanged from June to July when analysts were expecting to see a 0.4% increase in production. That is a sign of a weaker than expected manufacturing sector, which makes the data favorable for the bond market and mortgage rates. Unfortunately, it does not considered one of the more important monthly reports, preventing it from erasing this morning’s negative tone in bonds. It appears that this morning’s weakness in both bonds and stocks and being fueled by more speculation about when the Fed will start tapering their current bond buying program (QE3). Apparently some analysts and traders believe that this morning’s economic data helps support the theory of the Fed easing their purchases next month during their next FOMC meeting. I don’t come away from this data with the same thoughts, but that means little in the daily markets. I still think that the Fed is going to need further economic growth to support the start of winding down QE3, not just status quo of the past several months. In fact, in my opinion there are some red flags and indicators that hint of new problems that make further economic growth less likely without help from the Fed. I strongly believe that Chairman Bernanke and friends need to get it right the first time and will not pull their support or stimulus until they are certain they won’t have to step back in again. I just don’t feel we are at that point yet. Tomorrow also has three pieces of economic data scheduled for release, but none are considered to be highly important to mortgage rates. July's Housing Starts is the first at 8:30 AM ET, which will give us an indication of housing sector strength and future mortgage credit demand. It usually doesn't cause much movement in mortgage rates unless it varies greatly from forecasts. It is expected to show a fairly sizable increase in construction starts of new homes, pointing toward growth in the housing sector. The lower the number of starts, the better the news for the bond market, as it would indicate a weaker than expected housing sector. Employee Productivity and Costs data for the second quarter will also be posted early tomorrow morning. It will give us an indication of employee output per hour. High levels of productivity are believed to allow the economy to grow without fears of inflation. I don't see this being a big mover of mortgage rates either, but it may influence rates slightly during morning trading. Analysts have predicted no change in productivity during the second quarter and a 0.3% decline in labor costs. A sizable increase in productivity and larger than expected drop in costs could help improve bond prices, contributing to lower mortgage rates tomorrow. The final report of the week will come from the University of Michigan, who will release their Index of Consumer Sentiment for August at 9:55 AM. This index gives us a measurement of consumer willingness to spend. If confidence is rising, then consumers are more apt to make large purchases, helping fuel economic growth. By theory, a drop in confidence should boost bond prices, but this data is considered only moderately important. Analysts are expecting to see a reading of 85.2, which would be a slight increase from July's final reading of 85.1. The smaller the reading, the more concerned consumers are in their own financial situations and the better the news for mortgage rates. If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now...       Alan Russell 161 South San Antonio Rd. | Los Altos, CA 95022 Ph: 650-947-2296 | Fax: 408-335-1118 alanrussell@princetoncap.com CLICK HERE TO STOP RECEIVING OUR REPORT