INFO THAT HITS US WHERE WE LIVE The Pending Home Sales index came in last Wednesday a blip UP for May over April. This was the first time we had four consecutive monthly gains in the National Association of Realtors index since October 2004. And May's number was up 6.7% over a year ago.
Also on Wednesday, the government announced that homeowners who are underwater up to 125% can refinance under the Obama administration's Home Affordable Refinance Program (HARP). They have to be current with payments and the loan must be owned or guaranteed by Fannie Mae or Freddie Mac. They're boosting the program's loan-to-value (LTV) ceiling from 105% to 125% so more homeowners can take advantage of lower mortgage rates. The idea is to have HARP prevent more foreclosures to help stabilize the market. Details are available at www.makinghomeaffordable.gov.
Another sign of hope came last week from the S&P Case-Shiller home price index. We feel this index is negatively biased in tough times, yet April's reading showed the third straight month of DECREASING home price declines. There were even HOME PRICE INCREASES in some of the 20 US cities included in the index. Moody's Economy.com chief economist Mark Zandi chimed in: "The long and painful crash in the housing market is coming to an end."
>> Review of Last Week
SLIDING INTO THE FOURTH... In low-volume pre-holiday trading, the markets ended down for the third week in a row. What some analysts still feel is merely a summer correction has amounted to about a 5% drop in stock prices. Investor fears have been mitigated, but for a full recovery, economists want to see a bottoming in housing, which seems to be starting, and the rebalancing of household balance sheets, which also looks to be happening with a rising savings rate.
Tuesday the Chicago PMI came in UP for the month, good for manufacturing, but Consumer Confidence was down. Wednesday saw the ISM Manufacturing index UP for June, providing more encouragement for that sector. This was followed by initial unemployment claims dropping to 614,000 for the week, while continuing claims fell by 53,000, though still above 6 1/2 million.
All this was prelude to Thursday's June employment report. Jobs are a lagging indicator and things are still tough in the labor market. So job losses were higher than expected, though still not as bad as they were earlier in the year. The unemployment rate was also up, though less than expected. But please note, the labor force grew by 1.2 million the last five months. Without that growth, unemployment would be 8.8%, not 9.5%. Finally, Challenger, Gray & Christmas, a major job placement firm, reported employers are planning fewer layoffs than this time last year.
The Dow ended at 8,280.74 off 1.9% for the week; the S&P 500 fell 2.4% to 896.42; while the Nasdaq dropped 2.3% to 1,796.52.
The bond market didn't do too badly for the week. As stocks slid, bond prices improved. The FNMA 30-year 4.5% bond ended at $99.97, up 9bp for the day and up for another week. Mortgage interest rates continue to stay down at historically low levels.
>> This Week’s Forecast
QUIET FOR NOW... There's not a lot of economic data to ponder. We'll see if ISM Services goes up like ISM Manufacturing did. The Trade Balance gives an international read on things, as will any news coming out of the G8 meeting in Italy.
Corporate earnings for Q2 will start coming out, but this week the only big player will be Dow component Alcoa. More to come the following week.
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of July 6 – July 10
Date
Time (ET)
Release
For
Consensus
Prior
Impact
M July 6
10:00
ISM Services Index
Jun
46.0
44.0
Moderate
W July 8
10:35
Crude Inventories
7/3
NA
–3.66M
Moderate
Th July 9
08:30
Initial Jobless Claims
7/3
584K
614K
Moderate
F July 10
08:30
Trade Balance
May
–$29.5B
–$29.2B
Moderate
F July 10
09:55
U. of Michigan Consumer Sentiment–Prelim.
Jul
71.0
70.8
Moderate
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months. There is little expectation the Fed funds rate will change at the next two meetings. Please note: We are now forecasting Fed changes two meetings out, using rate predictions from the Federal Reserve Bank of Cleveland. A 5% probability of change is a 95% certainty the rate will stay the same.