Market News

[Adam in CO]

Compliments of

CORE
PHONE:
303-770-2262
adam@corefinancegroup.com
5310 DTC Pkwy
Greenwood Village, CO 80111



Events This Week:

Employment Solid
Inflation Lower
Productivity Down
Manufacturing Up

Events Next Week:
Wed 6/13 Retail Sales Beige Book
Thurs 6/14 PPI
Fri 6/15 CPI Industrial Prod. Sentiment


Mortgage Markets React to Worldwide Economic Growth


After three straight weeks of rising mortgage rates, and with no major economic news scheduled, investors generally expected at least a temporary break in the action last week. That was not the case, however, as mortgage rates surged another quarter point higher, nearly doubling the combined increase of the prior three weeks. Once again, there was little fresh US economic news to cause the move. Instead, investors responded to revised expectations for faster economic growth around the world and the increased likelihood of foreign central bank interest rate hikes to ward off potentially higher inflation. Last week, the European Central Bank and the central bank of New Zealand announced interest rate hikes, and they signaled that further action may be necessary. Most other major countries are likely to follow suit. In the US, investors have virtually given up hope for a rate cut this year, as the Fed is now expected to hold rates at current levels.

The other major factor behind the rise in mortgage rates is a shift by investors from fixed income markets to stock markets. In the US and around the world, many private investors have recently opted for the potentially higher returns offered by red hot stock markets, lowering demand for mortgage and other fixed income securities. In addition, some large government purchasers, most notably in China, have been diversifying their portfolios with a smaller proportion of US fixed income securities. When demand falls, interest rates must rise to attract investors.

The biggest news in the housing sector last week was the release of a revised economic forecast from the National Association of Realtors (NAR), which predicted slightly lower activity levels than the prior forecast. Specifically, they expect the number of Existing-home sales to be modestly lower in 2007, before returning close to 2006 levels in 2008. They also believe that home price appreciation will resume during the second half of 2007.

• Also Notable:
• Fed Chief Bernanke suggested that the housing market will remain a drag on economic growth for the rest of the year
• The NAR predicted that existing-home prices will fall slightly in 2007 and increase slightly in 2008
• Fannie Mae and Freddie Mac pledged to spend $20 billion on subprime mortgage purchases
• The Dow Jones equity index closed more than 300 points below the record level set last week

Average 30 yr fixed rate:
Last week:+0.05%
This week:+0.27%

Stocks (weekly):
Dow:13,358-308
NASDAQ:2,565-51

Week Ahead

The economic calendar will be packed next week, starting with Wednesday's Retail Sales report. Consumers account for about 70% of economic activity, and this report is a major indicator of spending levels by consumers. The week's most highly anticipated economic data will be the two major monthly inflation reports. Thursday's Producer Price Index (PPI) inflation report focuses on the increase in prices of "intermediate" goods used by companies to produce finished products, while Friday's Consumer Price Index (CPI) data looks at the price change for those finished goods which are sold to consumers. Almost without exception, higher inflation leads to higher interest rates, and CPI is the most widely watched indicator. Also on Friday, Industrial Production will be another important measure of economic activity. Consumer Sentiment and The Empire State regional manufacturing index will round out Friday's busy schedule.