Mission Viejo and Orange County, California Real Estate Blog

Current Trend Direction: Still battling resistance
July 16th, 2008 12:27 PM

Risks favor: Locking
Current Price of FNMA 6.0% Bond:  $100.78, -41bp
Inflation pressures remain a persistent problem, as evidenced by the Consumer Price Index (CPI) that was reported hotter than expected this morning.  Mortgage Bonds dropped after the news, adding to yesterday's losses. 
Prices paid by consumers rose in June by the most since 1991, led by soaring food and energy costs.  The headline CPI number - which includes food and energy - came in at 1.1%, higher than the 0.7% that was expected.  The Core CPI - which excludes food and energy - rose by 0.3%, higher than the 0.2% gain expected.  Prices overall are up 5% from a year ago, the biggest year-over-year rise since 1991, considerably higher than the 4.5% rise Wall Street economists were expecting.  The year-over-year core rate increased 2.4% , also more than forecast, and well outside the Fed's target zone of 1 to 2%. 
The Treasury International Capital Report for May showed Net Foreign Purchases of US securities of $67.0 Billion, down sharply from the $115.1 Billion investment seen in April.  Weakening foreign demand for US securities is a negative for the Bond market, but more importantly is a negative for the Dollar.  A weak Dollar adds pressure to oil prices, making the inflation issue even worse. 
Today is round two for Fed Chairman Ben Bernanke and his semi-annual appearance on monetary policy, this time before the House Financial Services Committee.  Also, the Fed's "Minutes" from the June 25th meeting will be released at 2:00pm ET and may be a late driver for the Bond market, depending on what the Minutes reflect about member attitudes toward monetary policy, inflation, and economic growth.
Wells Fargo reported second-quarter profits that topped analysts estimates.  But the big story was a surprise announcement that Wells has both the capital - and more importantly, the confidence - to boost their dividend to shareholders by 10%.  This move by Wells instilled some much needed faith in the health of our nations banking system, which has been the cause of much anxiety lately.  On this announcement, Stocks dramatically reversed course from what looked like another down day, to breaking back above 11,000 on the Dow. 
Posted by Gail McClendon on July 16th, 2008 12:27 PMPost a Comment (0)
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