Market Comment
Mortgage bond prices finished the week lower which pushed mortgage interest rates higher. Most of the weakness came early in the week. There was concern that the bull market in the bond market had ended and rates shot higher by almost a full discount point. The 3 and 10 year Treasury auctions were solid with strong foreign demand. Weaker than expected economic data near the end of the week helped recover a significant portion of the earlier losses. Weekly jobless claims were 264K versus the expected 275K. Producer prices fell 0.4% versus the expected 0.2% increase. The core, which excludes volatile food and energy, fell 0.2% versus the expected 0.1% increase. Industrial production fell 0.3% versus the expected 0.1% increase. Capacity use was 78.2%, expected 78.4%. Consumer sentiment came in at 88.6 versus the expected 96.0 mark. Mortgage interest rates finished the week worse by approximately 1/4 of a discount point.
China China is an important driver in the global recovery following the financial crisis that started in 2008. Their economy continues to expand whiles other countries falter. China is a major purchaser of commodities, especially copper and iron ore that are used in industrial production. That buying helps many developing countries weather the financial crisis. In addition to commodities, China buys US Treasury debt and currently holds in excess of $1.2T. China’s GDP growth in 2010 was 10.4%. That number fell in 2011 to 9.3%. Growth rates in 2012 and 2013 were 7.7%. China’s central bank cut interest rates for the third time in six months in May to address the economic slowdown. The weakness is broad-based including manufacturing, housing and investment. The Chinese economic growth rate is still sharply higher than most other large economies. However, the fear that growth will continue to slow has caused concern. China is a major trading partner with many economies. A dramatic slowdown in growth, or worse, a housing or credit bust would be felt around the world.
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