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Central Banks Aid European Banks

Big News for the European Economy, Raises Mortgage Rates ….

Investors grew a little less concerned about Europe during the week, which was favorable for the stock market but negative for mortgage rates.

This week’s inflation data also was unfavorable for mortgage rates, and rates ended the week a little higher. This movement differs from Freddie Mac’s highly publicized weekly average rate which reported that a new low was reached for the week ending September 15. The reason is simply that the Freddie Mac survey is conducted early in the week and does not reflect the change in rates which takes place later in the week.

On Thursday, five major central banks, including the European Central Bank (ECB) and the US Fed, announced that they will offer a lending facility for European banks seeking short-term liquidity. This aid reduced concerns about the region and encouraged investors to shift to riskier assets. In typical fashion, the stock market was a major beneficiary, while bonds markets suffered losses.

Inflation is on the rise. The August Consumer Price Index (CPI) rose more than expected from July and was 3.8% higher than one year ago. Core CPI, which excludes food and energy, was up 2.0% from one year ago. Late in 2010, Core CPI was increasing at just a 0.8% annual rate. The August Core Producer Price Index (PPI) was up an even higher 2.5% from one year ago. With a highly anticipated FOMC meeting next week, Fed officials must factor in higher inflation levels as they consider additional stimulus measures.

Also Notable:
• August Retail Sales were flat from July
• In July, employers posted the most job openings since August 2008
• It was reported that China is in talks to purchase Italian bonds
• Oil prices rose above $90 per barrel to the highest level since August 3

Average 30 yr fixed rate:
Last week: -0.02%
This week: +0.10%
Stocks (weekly):
Dow: 11,450 +450
NASDAQ: 2,600 +125

Week Ahead
The biggest economic news next week will be Wednesday’s Fed announcement. Fed officials are divided about whether to ease monetary policy further and investors will be very eager to hear the decision. The Economic Calendar will be light. Housing Starts will be released on Tuesday. Existing Home Sales will come out on Wednesday. Leading Indicators will be released on Thursday.

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Roger is an owner and licensed Loan Officer at Blue Water Mortgage. He graduated from the University of New Hampshire’s Whittemore School of Business and has been a leader in the mortgage industry for over 20 years. Roger has personally originated over 2500 residential loans and is considered to be in the top 1% of NH Loan Officers by leading national lender United Wholesale Mortgage.