Today everyone is always wondering what is going on in both the mortgage and financial markets. I am great at breaking down the mortgage markets, but I decided to team up with Fuller Asset Managment to provide my readers information on the Financial Markets. This will be a new segment that will be posted every month. Follow the link for more information about Fuller Asset Managment.

As Lawrence Fuller states: “We are in the midst of a synchronized global recession due primarily to an unprecedented contraction in credit availability“. This is defentiley the case we are facing today. Basically in todays business market cash is king. Lawrence states in his article that we need smarter government not bigger government. Lawrence finishes by stating that we will start to see an improvement in the credit institutions over the next couple of months.

Late positioning for the month spurred buying in both stocks and Treasuries today but light volumes in abbreviated sessions may have exaggerated price moves. Some safety flows favored bonds as news of terrorist activity in India continues to come in. Events that may have an impact on the markets often motivate investors to seek areas of less risk before a weekend when they cannot react to the news. 

10 Year Note Yield

But the safety shift did not extinguish this week’s positive sentiment in the stock market as traders have been picking up what they perceive as bargains.In late trading, the 10-Year Treasury Note was up by 16/32, lowering its yield by 6 basis points to 2.92%; the Dow was up by 102.43 points to 8,829.04; and the Nasdaq was up by 3.47 points to 1,535.57.

Despite bleak economic news released this week and expectations of more to come, stocks have had a good week. Announcements this week of new government efforts to facilitate credit flows and the selection of economic officials for the next administration have kindled some optimism and traders began to perceive the stock market as being oversold. But analysts note that the bounce is a test of the recent downtrend and it could trigger new waves of selling as more bearish news is released.
Oil futures rose today with a barrel of light, sweet crude for January delivery up by $1.08 on the New York Mercantile Exchange to settle at $55.52. For the week, the price has risen by $5.59 and today’s close was the highest for the front-month contract in two weeks. However, the price was down for the month by $12.29.

By the end today’s stock trading, the Dow had gained 1.17%; the S&P 500, 0.96%; and the Nasdaq, 0.32%. All three made good gains for the week with the Dow rising by 9.73%; the S&P 500, 12.03%; and the Nasdaq, 10.92%. But they all declined for the month: the Dow lost 5.32%, the S&P 500 lost 7.48%, and the Nasdaq lost 10.70%.

The yield of the benchmark 10-Year Note fell by 28 basis points this week (yield moves inversely to price). For the month, the yield has fallen by 104 basis points and currently stands at an historically low level.

Next week brings the early-month heavyweight economic indicators: the national index on the manufacturing sector and the employment report. The manufacturing data from the Institute for Supply Management (ISM) comes out on Monday. In its report for October, the ISM said its purchasing managers index came in at 38.9. Any reading below 50.0 indicates a general contraction in activity relative to the preceding month and October’s reading was the lowest since September of 1982. Analysts had predicted an index of about 41.5 following September’s 43.5. In the last twelve month’s, the index has registered 50.0 or above only four times and the strongest of those readings was 50.7.

The news release included the following explanatory comment by Norbert J. Ore, chair of the ISM, “The PMI indicates a significantly faster rate of decline in manufacturing when comparing October to September. It appears that manufacturing is experiencing significant demand destruction as a result of recent events, with members indicating challenges associated with the financial crisis, interruptions from the Gulf hurricane, and the lagging impact from higher oil prices.”
A modest bright spot was a tame inflation indicator in latest data. The prices index came in at 37.0. This was the first contraction reading since December of 2006 and the lowest reading since December of 2001.

Also out on Monday is the report on construction spending for October. In September’s report, the Commerce Department said that the seasonally adjusted, annualized pace of spending fell by 0.3%. The decline was smaller than the 0.7% or 0.8% that analysts were predicting and August’s originally reported flat reading (0.0%) was revised to an increase of 0.3%. However, July’s previously reported decline of 1.4% (already revised from an originally reported drop of 0.6%) was once again revised to a decline of 2.4% — the largest in over two years.

The housing arena remained a weak spot. The last report said the pace declined in the residential sector by 1.3%. August’s originally reported increase of 0.3% was revised up to a gain of 1.9%, the largest jump since December of 2005. But July’s previously reported decline of 3.7% was revised to a steeper drop of 5.9%. Though July’s spending pace was lower, September’s was the second lowest since December of 2000.

On Wednesday, the revised report on productivity for the third quarter will be released. In the preliminary report released earlier this month, the Labor Department said that, according to preliminary data, the seasonally adjusted level of nonfarm business productivity (average output per worker per hour) grew at an annualized rate of 1.1% in the third quarter of the year relative to the second. This was the slowest pace of the year so far and the previously reported increase of 4.3% in the second quarter was revised to 3.6%.

A deceleration had been anticipated, however, because of the contraction reported in the advance report on gross domestic product. Also not unexpectedly, the lower productivity growth increased unit labor costs (ULC: average cost per unit of output). According to the initial calculations, they grew by 3.6% in the third quarter following a 0.1% decline in the second (revised from the previously reported decline of 0.5%).

Wednesday also brings the ISM index for the services sector of the economy. In October, the index came in at 44.4, down sharply from September’s reading of 50.2. As is the case with the manufacturing index, any reading of the services index under 50.0 reflects a general contraction in activity relative to the preceding month.

The current index, the NMI or Non-Manufacturing Index is new — first published last January. It is a composite of four seasonally adjusted indices: business activity, new orders, employment, and supplier deliveries. October’s reading is the lowest in the data series so far.
Before the NMI was instituted, the business activities index was the headline indicator on the services sector, but it is derived from a single question in the survey of business purchasing managers. The business activities index for October came in at 44.2, down from September’s 52.1. It was the lowest reading since last January’s 41.9 and the second lowest since October of 2001 when it came in at 40.5.

On Wednesday afternoon, the Federal Reserve will release its latest edition of the Beige Book, an anecdotal summary of economic conditions in the twelve Fed regions. The report is used as one of the background resources in the monetary policy committee’s deliberations. The next policy meeting is slated for the 15th and 16th of December.

The Beige Book rarely has much impact on the markets since previously released indicators have already sketched out the economic landscape. But any rhetorical variant, a particular focus or emphasis, could be perceived as a signal of Fed intentions and have some influence on traders. Currently, Fed watchers are anticipating another cut in the committee’s target for the fed funds rate (overnight borrowing rate between banks) and the discount rate (rate charged for loans directly from the Fed).

Thursday brings the weekly report on jobless claims and it will get added attention as it comes out a day before the employment report for November. The data collection periods for the two reports do not coincide but the trend in claims provides insight on the state of the labor market.
In Wednesday’s report, the Labor Department reported that the seasonally adjusted level of initial claims for state unemployment benefits fell last week by 14,000 to 529,000. The decline was not unexpected following two week’s of increases totaling 59,000.
In any case, readings over 400,000 are considered a sign that layoffs are outpacing hiring and the latest claims level was the second highest since July of 1992.

The four-week moving average, which smoothes out some short-term volatility, rose by 11,000 to 518,000 — the highest reading since January of 1983. For the forty-seven weeks of the year so far, the average initial claims reading has been 406,340. For the same period last year it was 319,085.
The report said that continuing claims fell by 54,000 to 3.962 million in the week ending November 15 (continuing claims must be at least a week old). This was the second highest reading since January of 1983. The four-week average rose by 60,250 to 3.929 million — the highest reading since January of 1983. For the first forty-six weeks of the year, the average continuing claims reading has been 3,203,413. For the same period last year, the average was 2,535,957.

Also on Thursday, the Commerce Department will release its report on factory orders for October. September’s report said that the seasonally adjusted level of new orders fell that month by 2.5%. The decline was stronger than the 1.0% that analysts had predicted. August’s originally reported decline of 4.0% was also revised to a drop of 4.3%, the largest decline since October of 2006.
All of the key sub-categories also saw sizeable declines. The order level outside the large but volatile category of transportation fell by 3.7% after a 3.6% decline in August. September’s drop was the largest in the history of the data series going back to 1992. Within the transportation sector, orders rose by 6.5%, the biggest increase in seven months.

Another closely watched category is that of orders outside the defense sector since those in the sector are not governed by standard market forces. Ex-defense orders fell by 3.3% following a 4.5% decline in August. Defense orders rose by 22.8%, the biggest increase since last December.
Orders for capital goods outside of the defense sector and excluding commercial aircraft are seen as a gauge of core business demand. The category saw a decline of 1.5% in September following a decline of 2.3% in August.

For October, recent predictions have called for a decline in the factory orders level of 2.7%. But Wednesday’s report on durable goods orders, which make up slightly more than half of all factory orders, indicated a drop 6.2%. This suggests that the overall order rate may be a larger decline than previously forecast.

On Friday, the often market-moving employment report comes out. In the report for October, the Labor Department said the seasonally adjusted level of nonfarm payrolls declined that month by 240,000. This was a larger decline than the 200,000 that forecasters had predicted. In addition, September’s originally reported decline of 159,000 was revised to a drop of 284,000, the biggest decline since November of 2001. August’s previously reported decline of 73,000 was revised to a drop of 127,000.

The report indicated that job losses were broad-based; losses were posted in both the goods producing and services sector. Besides the larger than expected loss in payrolls, the report said that the unemployment rate — the percentage of the active workforce without jobs — jumped from 6.1% in September to 6.5% in October. This was the highest reading since March of 1994.
For November, payrolls are expected to have fallen by between 250,000 and 300,000. The unemployment rate is expected to have risen to 6.8%. This would be the highest rate since October of 1993.

10:30 AM EST : There are no economic releases today and many traders are on the sidelines, extending the Thanksgiving Day holiday through the weekend. But this is the last trading day of the month, affording portfolio managers with their last opportunity to readjust their holdings before closing out their books for November.

The markets have been exceptionally volatile since August and they are especially vulnerable when trading volumes are low due to the loss of liquidity. With this in mind, many traders will attempt to take a conservative approach today, not wanting to rock the boat. That is evident in early action as both bonds and stocks are hovering in tight channels around unchanged levels . . . .

Source: LionMTS

With the exception of the long bond, intermediate and long-dated Treasuries are up this morning, though off earlier highs. Stock prices are mixed to modestly higher in choppy trading. Today’s economic news was mixed but the major release was much more bearish than observers were expecting.

The Institute for Supply Management (ISM) said its index on the nation’s manufacturing sector came in at 38.9 for October. Any reading below 50.0 indicates a general contraction in activity relative to the preceding month and October’s reading was the lowest since September of 1982. Analysts had predicted an index of about 41.5 following September’s 43.5. In the last twelve month’s, the index has registered 50.0 or above only four times and the strongest of those readings was 50.7.

The news release includes the following explanatory comment by Norbert J. Ore, chair of the ISM, “The PMI indicates a significantly faster rate of decline in manufacturing when comparing October to September. It appears that manufacturing is experiencing significant demand destruction as a result of recent events, with members indicating challenges associated with the financial crisis, interruptions from the Gulf hurricane, and the lagging impact from higher oil prices.”

A modest bright spot was a tame inflation indicator in latest data. The prices index came in at 37.0. This was the first contraction reading since December of 2006 and the lowest reading since December of 2001.

The headline number of the other economic release of the day was more bullish than expected but revisions to past data are offering some counterbalance. The Commerce Department said that the seasonally adjusted, annualized pace of construction spending fell by 0.3% in September. The decline was smaller than the 0.7% or 0.8% that analysts were predicting and August’s originally reported flat reading (0.0%) was revised to an increase of 0.3%. However, July’s previously reported decline of 1.4% (already revised from an originally reported drop of 0.6%) was once again revised to a decline of 2.4% — the largest in over two years.

The housing arena remained a weak spot. The report said the pace declined in the residential sector by 1.3%. August’s originally reported increase of 0.3% was revised up to a gain of 1.9%, the largest jump since December of 2005. But July’s previously reported decline of 3.7% was revised to a steeper drop of 5.9%. Though July’s spending pace was lower, September’s was the second lowest since December of 2000.

This week’s economic calendar contains a couple of heavyweight releases. Today’s ISM Index was one and the other is Friday’s employment report for last month.

Tomorrow, the report on factory orders for September will be released. The trend in orders provides some insight regarding demand levels and upcoming production activity. In the report for August, the Commerce Department said that the seasonally adjusted level of new orders fell by 4.0%, the largest decline since October of 2006. In addition, July’s originally reported increase of 1.3% was revised to a gain of just 0.7%.

A particularly volatile category is transportation and the order level fell there by 9.1% in August. But even excluding the category, orders were down by 3.3%, the biggest drop since September of 2001. Another closely watched category is ex-defense orders since defense demands are not governed by standard market forces. Defense orders rose in August by 3.6%, leaving ex-defense orders down by 4.2%, the biggest drop in a year.

The report said that durable goods orders fell by 4.8%, the largest decline in twenty months. Orders for non-durable items declined by 3.3%, the biggest drop in two years.

Another key category is nondefense capital goods minus aircraft — seen as a gauge of core business demand. The order level there was down by 2.4% in August, the biggest decline in twenty months.

According to last Wednesday’s report on durable goods orders for September, they rose by 0.8% but August’s previously reported decline of 4.8% was revised to a deeper drop of 5.5%, making it the biggest contraction since October of 2006. Moreover, declines were posted in the ex-transportation, ex-defense, and ex-defense minus aircraft categories.

Despite the modest increase in durable orders, analysts are calling for a decline in overall factory orders of between 0.7% and 1.0%.

On Wednesday, the ISM will release its index for the non-manufacturing or services sector of the economy. The current services index, the NMI or Non-Manufacturing Index is new — first published last January. It is a composite of four seasonally adjusted indices: business activity, new orders, employment, and supplier deliveries. In September, the index came in at 50.2, down from August’s 50.6. Like the manufacturing index, any reading over 50.0 indicates a general expansion for the month.

The highest reading this year is only 52.0 and the average has been 49.5. This suggests that the sector is basically idling.

Before the NMI was instituted, the business activities index was the headline indicator on the services sector, but it is derived from a single question in the survey of business purchasing managers. The business activities index for September came in at 52.1, up from August’s 51.6 and the highest reading since May.

The report contained another encouraging inflation indicator. The prices index came in at 70.0. While still reflecting strong increases, it was down from August’s 72.9 and was the lowest reading since February.

For October, the consensus forecast range is between 48.5 and 49.0.

On Thursday, the jobless claims report will highlight the employment sector. In last Thursday’s report, the Labor Department said the seasonally adjusted level of initial claims for state unemployment benefits was unchanged in the week ending October 25 at 479,000. The lull followed large swings that saw the level increase by 16,000 in the week ending October 18 following two weeks of declines totaling 36,000 following three weeks of increases totaling 54,000. The four-week moving average, which smoothes out some of the short-term volatility, declined by 5,000 to 475,500.

The claims level remains elevated. Any reading over 400,000 suggests that layoffs are outpacing hiring. Despite the tame readings in the last two weeks, the trend has been up. For the first forty-three weeks of the year so far, the average claims reading has been 395,814. For the same period last year, the average was 317,512.

The report said that continuing claims fell by 12,000 to 3.715 million in the week ending October 18 (continuing claims must be at least a week old). The decline was the first in six weeks. The four-week average rose by 28,000 to 3,709,500, the highest reading since May of 2003. For the first forty-two weeks of the year so far, the average continuing claims reading has been 3,134,167. For the same period last year, the average was 2,529,476.

The claims data was collected after the surveys for October’s employment report were conducted so the two reports have no direct correlation. But the claims report will act as a reminder that the monthly report is looming. Since forecast misses in the monthly jobs data have produced substantial reactions in the markets, some traders may be encouraged to take defensive positions. However, this may be more prevalent in the stock market as the outlook for the labor market is not bright in a contracting economy.

Also on Thursday is the preliminary report on productivity for the third quarter. In the final report for the second quarter, the Labor Department said that nonfarm business productivity (average output per worker per hour) rose at a 4.3% annualized rate. This was up from a 2.6% rate in the first quarter.

Because the advance report on gross domestic product indicated a 0.3% contraction in the third quarter, productivity is also expected to have been weaker. Analysts are predicting an increase of about 1.0%. This would be the weakest growth in three quarters and the growth may be chiefly attributed to the reductions in employment rolls.

On Friday, the major release of the day is the employment report. In September’s report, the Labor Department said that the seasonally adjusted level of nonfarm payrolls fell that month by 159,000. Not only was this a much larger decline than recent forecasts of 90,000 to 100,000, but it was the largest since March of 2003.

The weakness was broad-based, hitting both the goods producing and services sectors. While the payroll figure was weaker than anticipated, the unemployment rate, as expected, came in at 6.1%, matching August’s reading. However, it was still the highest since September of 2003. The unemployment rate is the percentage of those in the active workforce without jobs.

Analysts feel that October’s report will be bleak. They are predicting that payrolls fell by between 175,000 and 185,000. They are also predicting that the unemployment rate rose to 6.3%. If the employment rate prediction is true, it would be the highest since June of 2003.

A couple of minor releases also are slated for Friday. The report on pending home sales will provide some insight on upcoming sales activity. The report for August surprised observers by showing a substantial pickup in contract activity. The National Association of Realtors reported that its index of sales rose by 7.4%. The rise was corroborated in the latest report on existing home sales which also showed a surprising rise in September. Though the sector continues to struggle, the latest sales data suggests that falling home prices are generating increased buying interest.

Another second-tier release on Friday is the report on wholesale inventories for September. In August’s report, the Commerce Department said that the seasonally adjusted level of inventories rose by 0.8%. Though twice as large as analysts had predicted, latest gain was the weakest in five months.

Rising inventories can be seen as bullish if they are perceived as resulting from preparation for increased demand. But August’s report said that the level of sales fell in August by 1.0%. This was the largest decline since January of 2007 and July’s previously reported decline of 0.3% was revised to a decline of 0.8%.

The monthly changes resulted in an inventory-to-sales (I/S) ratio for August of 1.10 and July’s previously reported 1.07 ratio was revised up to 1.08. The I/S ratio is the value of stocks on hand at the end of a month divided by the value of sales for the month. It indicates how many months it would take to entirely deplete existing inventory at the prevailing sales pace. Rising turnover times mean increasing pressure to replace supplies. The ratio is still low by historical standards, however. June’s 1.06 reading was a record low.

For September, the inventory level is expected to make another small increase but the sale level is expected to have declined again.

The wholesale inventory data is dated. The report is also considered second-tier since it provides only one piece of the inventories picture. A more comprehensive report — including the manufacturing, wholesale, and retail sectors — will be released on the 14th.

A question that is asked every day in the mortgage business from clients is where the interest rates are heading.

The truth is all mortgage advisors wished we had a crystal ball and could answer that question for you. With the financial markets in so much turmoil, the tradition tools to help gauge the market and mortgage interest rates have not been working. We are seeing interest rates go through as much turmoil as the financial markets. What I do advise my clients to understand is the factors that make up the mortgage interest rate that can be controlled.

Several Factors Affect Your Mortgage Rate:

Understanding the Factors affecting your Mortgage Rate

So, if you can control these factors, you will have a much better understanding of how to take advantage of the best mortgage interest rates available.

The international markets have finally moved back in and the investor confidence is up again for mortgage backed securities since the announcement of a government bailout. 

This had a direct impact Monday on mortgage rates across the board.  What does this mean to the end consumer?

It means that you should be able to take advantage of those lower interest rates you were looking for.  It might mean you can afford more of a home and get a lower payment.  If anything this should be a wake-up call that consumers are finally in the best position to benefit from both great real estate prices and interest rates.

After 24 days of higher mortgage rates, we are finally starting to see some relief.  This week we saw the biggest move of  mortgage rates in the last 3 weeks.  Most of this came about after oil prices and inflationary concerns are finally being put in check.  We saw mortgage rates on the 30 year fixed come down by 3/8 percent in rate.  This is now a good time to put yourself in a position to lock in that 30 year fixed.