Monday, October 9th
COLUMBUS DAYBanking Holiday
Tuesday, October 10th
Rate cut expectations moved lower after the release of the employment report. Upward revisions to job gains and a decrease in the unemployment rate overshadowed what was a weak looking headline figure. Yesterday, fed funds futures traders were pricing in just a 20% chance the Fed would ease rates at the end of January, which means there is a strong likelihood the Fed will remain on hold through this year and in January, pushing a potential rate cut to second quarter or later.
Wednesday, October 11th
September 20 FOMC meeting minutes indicated that the Fed remained quite concerned about inflation but believed that slower economic conditions and previous rate hikes would work to keep it contained, lessening the risk of holding the target for the fed funds rate steady at 5.25%. Most of the economic slowing was attributed cooling in the housing market which is expected to abate sometime next year.
The MBA mortgage applications index fell 5.5% to 599.1% for the week that ended October 6. Purchase applications decreased 5.3% on the week while refinancing volume fell 5.8%. Declines this week follow sizable gains last week. Mortgage application volumes are leveling off as mortgage rates stabilize.
Thursday, October 12th
Jobless claims rose 4k to 308k for the week that ended October 7. The low level of claims suggests a subdued pace of layoffs and a relatively tight labor market. Job gains however should remain modest.
The international trade deficit increased $1.9 billion in August to a record $69.9 billion, compared to expectations for a small decline. The deficit widened on high oil prices and strong domestic demand for foreign made goods and services. After remaining fairly stable the first half of the year the trade gap has deteriorated sharply in the last two months due to expensive oil imports. Recent oil price declines should stem some of the deterioration in the trade deficit in coming months.
The Fed's beige book showed that the economy continued to grow in late August and September despite widespread cooling in the housing market. The latest survey of the Fed's twelve banking districts was compiled in preparation for the October 24-25 FOMC meeting. Economic expansion in most areas was moderate or mixed but housing slowed in all areas resulting in slower sales, rising inventories and softer prices. Pricing pressures did not accelerate. The survey is consistent with near potential economic growth, contained inflation and steady monetary policy. The Fed is expected to remain on hold through the remainder of this year and possibly through the first half of next year.
Lenders raised mortgage rates this week on higher bond yields generated by the minutes of the last FOMC meeting where policy makers expressed concern over inflation. 30-year fixed rate mortgages averaged 6.37% this week compared to 6.30% last week according to Freddie Mac's mortgage market survey.
Friday, October 13th
Retail sales fell 0.4% in September less than an expected gain of 0.2%. Weakness stemmed from a 9.3% plunge in gasoline sales related to lower prices at the pump. Excluding gasoline, retail sales rose 0.6% reflecting generally healthy spending in most other categories. Apart from the volatility in gasoline sales, consumer spending remains strong and will contribute positively to third quarter GDP growth.
Import prices plummeted 2.1% in September based on a 10.3% drop in petroleum prices. Crude oil prices have retracted most of the gains seen in the last year. Over the last twelve months, imported petroleum prices are up just 2.9% compared to 30 and 40 percent gains in 2004 and 2005. Recent decline in oil prices are expected to produce more tame inflation reading next week when the CPI and PPI are released.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 11960.51 11850.21 +110.30 or +0.93%
NASDAQ 2357.29 2299.99 +57.30 or +2.49%
WEEK IN ADVANCE
Financial markets may have been getting ahead of themselves in anticipation of imminent easing. Indeed, Fed speak and FOMC meeting minutes from last week quashed rate cut possibilities and instead focused on inflation. Consumer and producer price data in the coming week will clarify inflation against the backdrop of lower oil prices.
Key Interest Rates Latest 6 Mos Ago 1 Yr Ago
Prime Rate 8.25% 7.75% 6.75%
Fed Discount 6.25% 5.75% .75%
Fed Funds 5.25% 4.76% 3.68%
11th District COF 4.277% 3.604% 2.870%
10-Year Note 4.81% 4.98% 4.45%
30-Year Treasury Bond 4.94% 5.05% 4.48%
30-Yr Fixed (FHLMC) 6.37% 6.49% 6.03%
15-Yr Fixed (FHLMC) 6.06% 6.14% 5.62%
1-Yr Adj (FHLMC) 5.56% 5.61% 4.85%
6-Mo Libor (FNMA) 5.3704% 5.1196% 4.2154%
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco
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