The Dow last traded at 14,502 about 300 pts lower than last Friday. The S&P 500 is trading at 1,550. Gold is trading lower at $1,396 an ounce, while oil futures at $87.85 a barrel. Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.65/Gal.
Yields on 10-year Treasury notes, which move inversely to prices, last traded at 1.70%. 30-year Treasury Bond yields last traded at 2.88%. Mortgage Bonds have broken out of the downward trend (higher rates) they’ve been trading in since Dec 5, 2012 and look to have established a higher range (lower rates). The MBS (Mortgage Backed Security) FNMA 30-year fixed 3.0% coupon, containing 3.25-3.625% mortgages, pretty much the benchmark or how rate sheets are priced these days is currently trading at 104.21 lower by about where we were last Friday. Basically each percent change in the price of the security translates to the price (or points paid or credited) of the mortgage rate. The higher the number (price), the better the rate.
In economic news this week; the reader’s digest version is that the economy looks to be slowing again. Manufacturing is slowing, inflation is tame, and builder confidence is slowing a bit.
Manufacturing activity nudged higher in the New York region in April, reinforcing other data showing the economy is entering a spring slowdown. The New York Fed’s Empire State index fell to 3.1 points in April from 9.2 in March. Manufacturers in the Philadelphia region continued to expand their business in April, but just barely, and companies were less eager to hire new workers. The Philadelphia Fed’s index of business conditions fell to 1.3 in April from 2.0 in March. Readings above zero indicate manufacturing is growing instead of shrinking. Manufacturers led the recovery after the last recession ended in mid-2009, but the sector began to lose momentum in 2011, and business has been lax ever since.
According to the Conference Board, the economy “has lost some steam” and will grow slowly in the near term as it reported that its leading economic index LEI, a weighted gauge of 10 indicators designed to signal business-cycle peaks and troughs, declined 0.1% last month following three months of gains. The largest negative contribution came from consumers’ expectations. Other negative contributions came from building permits, a manufacturing new-orders index, weekly manufacturing hours and weekly jobless claims.
On a more positive note; industrial production increased a tad in March capping off the best quarter in a year for output in which demand for cars and construction supplies grew. The Fed said industrial production rose 0.4% in March, and February’s growth was revised higher to 1.1% from the initially reported 0.8% advance.
Construction on new homes in March hit the highest rate in almost five years, as starts for apartments jumped. The report pointed to an ongoing rebound in housing activity: starts in March were up 47% from the same period a year ago, the largest year-over-year growth since 1992. Housing starts rose 7% in March to an annual rate of 1.04 million, the highest rate since June 2008. Despite the construction gains, starts remain below a bubble peak of almost 2.3 million in 2006. Building permits, a sign of future demand, fell 3.9% in March.
On the inflation front; Consumer inflation pressures eased in March as gasoline prices dropped, which could add to fears of renewed deflationary pressure in the economy as hinted by the drop in gold prices. The consumer price index CPI decreased 0.2% in March, led by lower energy and apparel costs. In the past year, the CPI has risen just 1.5%, the slowest year-over-year growth since July. The combination of tame inflation, tighter fiscal policy and a soft patch in the economic data should allow the Fed to maintain its bond-buying program at its current $85 billion pace. The Fed Gods will meet again for two days on April 30-May 1.
A gauge of confidence among home builders decreased to 42 in April from 44 in March for a third month of declines, hitting the lowest level in six months, hurt by weaker views on present sales of single-family homes and prospective-buyer traffic. Apparently according to the report; many builders are expressing frustration over being unable to respond to the rising demand for new homes due to difficulties in obtaining construction credit, overly restrictive mortgage lending rules and construction costs that are increasing at a faster pace than appraised values. The last time the index reached above a key reading of 50 was in 2006. Readings over 50 indicate that more builders see sales conditions as good than poor. Despite April’s decline, the sentiment level among builders is up 75% from a year earlier.
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