Last week we kept our eye on the direction of a few economic reports that would impact how the market would react. Today we can definitely say that impact was felt in stocks while bonds rallied and home mortgage loan rates responded. Helping bonds was the reports on both the wholesale and consumer levels. The wholesale measuring Producer Price Index (PPI) showed that prices remained primarily unchanged during March.
Bonds and home mortgage loan rates were also supported last week by inflation data from the Consumer Price Index (CPI). The figures for March were right in line of expectations. The Feds are still reiterating that inflation remains subdued. What’s raising eyebrows though is the year-over-year rise of the Core CPI which continues an ever so slightly rise and will dampen mortgage home loan rates and bonds from improving very much.
A key factor which we always keep our eye is the labor market. Last weeks Initial Jobless Claims increased 13,000 to 380,000 for the week ending April 7. This marks the highest levels since January. It is not only a concern with the market but the Feds are even now acknowledging that job creations are well short of their goals. In fact, the Federal Reserve Vice Chairman Janet Yellen said that weakness in housing, the European debt crisis, and government spending cuts are likely to slow the pace of recovery and expansion. She did iterate that there was plenty of stimulus tools at the Feds disposal if needed — i.e. Quantitative Easing.
The bottom line is that many factors will impact the direction in which bonds and home mortgage rates move in the coming weeks. The great news for homebuyers is that mortgage interest rates are near historic lows and now is a great time to consider purchasing a home.
This Monday we get the Retail Sales figures. This will help investors determine how consumer spending is holding up.
The weekly Initial Jobless Claims report will be released on Thursday as well. This report last week showed jobless claims rose to their highest levels since the week ending January 28. So this report will be closely watched by investors.
In addition to those reports, we will continue to get Corporate Earning reports that could sway opinion and influence the stock and bond markets.
Remember weak economic news generally causes money to flow out of stocks and into bonds, helping bonds and mortgage home loan rates to improve, while strong economic news normally has the reverse result. So for now things seem to be spinning favorably in the direction of bonds. We shall see what the week ahead has in store.