Daily Market Update 5/30/08

Rates improved following this morning's release of the April Core PCE price index, the Fed's preferred inflation indicator, showing an annual increase of 2.1%. Although the Fed would like to see this level fall below 2%, the data was in line with expectations. Even with today's gains, the mortgage-backed securities market has seen a rough week, with rates having risen about 1/4% since Monday. Yesterday, Dallas Fed President Richard Fisher commented that if the inflation outlook continues to worsen he expects a change in monetary policy will occur "sooner rather than later". Futures on the Chicago Board of Trade now show a 31% chance the Central Bank will raise the target Fed Funds rate by at least 1/4% in September. Ultimately, a hawkish attitude on inflation by the Fed will benefit the market by holding down long-term fixed rates, since inflation erodes the value of fixed rate securities.

Daily Market Update 5/29/08

Mortgage rates continued their upward trend Thursday as first quarter Gross Domestic Product (GDP), a key measure of economic growth, was revised higher. Investor sentiment has shifted in recent days, as inflationary fears have increased while concerns about a severe economic contraction have receded. Most forecasters are now expecting the next Fed move to be an increase in rates later this year. Crude oil prices moved higher on a report showing an unexpected decline in oil and gas inventories. Focus now turns to tomorrow's Department of Commerce release of the Core PCE, which measures price changes in consumer goods and services and is watched closely by the Fed.

Daily Market Update 5/28/08

Mortgage rates moved higher Wednesday as Durable Goods Orders for April were better than expected. Oil prices slid below $128 a barrel; stock prices and the US Dollar were higher. Mortgage-backed securities investors remain focused on signs of increasing inflation in spite of general weakness in the economy. Lingering concerns about "stagflation", the term coined in the late 1970's describing slow economic growth coupled with high inflation, are currently preventing any sustained improvement in long term interest rates.

Daily Market Update 5/27/08

Mortgage rates inched higher Tuesday on global inflationary fears. In economic news, the Standard & Poors/Case-Shiller Home Prices Index showed a 14.1% decline in home prices for the first quarter of 2008 compared the same period a year earlier. New home sales increased unexpectedly by 3.3% in April from March but were down 42% from April 2007. Oil dipped below $130 a barrel and the US Dollar was higher. Investors now await Wednesday's report on Durable Goods Orders and Friday's release of the Core CPE, a key gauge used by the Federal Reserve to measure inflation.

Daily Market Update 5/23/08

Mortgage rates inched lower as the National Association of Realtors reported a 1% decline in Existing Home Sales for April from March. The annual pace of 4.89 million units represents a 17.5% drop from April 2007. The median price for the month fell 8% from a year ago. Stocks were lower as oil resumed its surge to nearly $133 a barrel. The main news for the week was Tuesday's release of minutes from the Fed's April FOMC Meeting indicating growing inflationary concerns among Fed members. Further rate cuts now appear unlikely, and most analysts expect the Fed to begin raising rates by year end. One positive development for the week was the return of investor confidence in financial markets, where the worst appears to be over.

Daily Market Update 5/22/08

Rates moved higher Thursday as crude oil prices topped $135 per barrel before falling back slightly. Bond traders now see a 30% chance the Fed will need to begin raising interest rates in September to help curb inflation according to the Chicago Board of Trade. US home prices fell 0.2% last quarter, less than forecast. Fed officials lowered their 2008 economic growth outlook yesterday, while raising their outlook for price growth. Separately, first time jobless claims fell to 365,000, down from 374,000 the prior week.

Daily Market Update 5/21/08

Mortgage rates were mixed Wednesday as fixed rates moved modestly higher and adjustable rates improved. Inflationary concerns, driven by higher oil prices and a weaker US Dollar, continue to dominate investor sentiment. Minutes from the April 30 Federal Open Market Committee meeting will be released this afternoon at 2:00 PM. This should provide a more detailed look at the reasoning behind the Fed's most recent rate cut. Economists will also be searching the report for hints as to the likely direction of future Fed moves.