Market Update for the Week of June 18, 2012

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QUOTE OF THE WEEK..."The only limits are, as always, those of vision." --James Broughton, American poet, author and filmmaker.

INFO THAT HITS US WHERE WE LIVE... Americans are now expanding their vision of how big a home they want to live in. The Census Bureau reports the average size of a newly built home in 2011 was 2480 square feet. That was 3.7% bigger than the average size in 2010 -- and the first annual increase since 2007! Record-low interest rates are also allowing buyers to move up in size for virtually the same mortgage payments. The trend helped boost the average new home price in April to $282,600, up more than 5% over a year ago.

More foreign buyers are seeing attractive opportunities in the U.S. housing market. A National Association of Realtors (NAR) survey revealed that home sales to international buyers were up 24% for the 12 months ending in March. Finally, a Mortgage Bankers Association (MBA) survey showed demand for purchase loans was up 13% for the week and up 4% from a year ago. This put it at the highest level in more than six months!

BUSINESS TIP OF THE WEEK... Want to be more innovative? Focus on your customers. This will help you find ways to serve needs they might not even realize they have.

Review of Last Week

TWO IN A ROW... By the time the market action ended on Friday we had the first back to back weekly gains for the Dow and the S&P 500 since April and the first for the Nasdaq since the end of March. The optimism stemmed from indications that major central banks might take coordinated action if the outcome of Sunday's Greek elections puts a strain on global financial markets. Our own U.S. economic data was anything but optimistic.
May Retail Sales were down by a greater-than-expected 0.2% overall and down 0.4% excluding autos. Consumer reluctance to spend was supported by the University of Michigan's Consumer Sentiment survey dropping to its lowest point since last December. Industrial output also weakened in May, while manufacturing in the New York region tanked in June. Finally, Weekly Initial Jobless Claims increased to 386,000. The only bright spot came with core consumer prices up just 0.2% in May, still within the Fed's inflation guidelines.

For the week, the Dow ended UP 1.7%, at 12767; the S&P 500 closed UP 1.3%, to 1343; and the Nasdaq ended UP 0.5%, to 2873.

Given the soft U.S. economic data, the central banks' supposed resolve to shore things up in Europe wasn't enough to keep investors away from the safe haven of bonds. The FNMA 3.5% bond we watch finished the week up 0.73, at $105.03. The Mortgage Bankers Association reported that national average mortgage rates finally found a bottom last week, staying near record lows.

DID YOU KNOW?... The LEI Index tracks Leading Economic Indicators that change ahead of the economy. These include building permits, unemployment claims, production workweek, money supply, inventory changes and stock prices.

This Week’s Forecast

KEY MAY HOUSING DATA, PLUS THE FED... This week we'll look for more signs of recovery at both ends of the housing market. On the new homes front, builders are expected to continue feeling optimistic as May Housing Starts and Building Permits should be up a bit on Tuesday. But Existing Home Sales on Thursday are expected down a tad.

All eyes will be on the Fed meeting Wednesday. There will be no drama around the FOMC Rate Decision, with the central bank openly committed to a super low rate. But with economic growth dipping below 2% and unemployment inching higher, the Fed's policy statement will be scrutinized, as well as Chairman Bernanke's comments in the press conference that will follow.

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 Jun 18 – Jun 22

Date Time (ET) Release For Consensus Prior Impact

Tu Jun 19 08:30 Housing Starts May 719K 717K Moderate

Tu Jun 19 08:30 Building Permits May 725K 715K Moderate

W Jun 20 10:30 Crude Inventories 06/16 NA –0.191M Moderate

W Jun 20 12:30 FOMC Rate Decision 06/20 0–0.25% 0–0.25% HIGH

Th Jun 21 08:30 Initial Unemployment Claims 06/16 375K 386K Moderate

Th Jun 21 08:30 Continuing Unemployment Claims 06/09 3.275M 3.278M Moderate

Th Jun 21 10:00 Existing Home Sales May 4.56M 4.62M Moderate

Th Jun 21 10:00 Philadelphia Fed Manufacturing Index Jun 2.5 –5.8 HIGH

Th Jun 21 10:00 Leading Economic Indicators (LEI) Index May 0.1% –0.1% Moderate

Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months... The Fed may discuss a new round of quantitative easing at this week's meeting, but no one expects them to touch the super low Funds Rate. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.

Current Fed Funds Rate: 0%–0.25%

After FOMC meeting on: Consensus

Jun 20 0%–0.25%

Jul 31 0%–0.25%

Sep 12 0%–0.25%



Probability of change from current policy:

After FOMC meeting on: Consensus

Jun 20 <1%

Jul 31 <1%

Sep 12 <1%



UIE