Little Reaction to EU Summit

With little economic data in the US this week, the focus was on Europe. Some investors were hoping that a more concrete plan to address the region’s issues would be announced during the week, but they were somewhat disappointed. As a result, relatively safer assets saw gains, and mortgage rates ended the week lower.

A highly anticipated EU summit left investors with mixed feelings and produced little reaction in financial markets. On Friday, European leaders announced that at least 23 of the 27 members of the European Union have agreed in principle to tighten their fiscal coordination and to limit budget deficits. The details, which will determine the effectiveness of the plan, are to be worked out in the future. In essence, investors viewed this news as only a small step forward.

What investors really would like to see is a major new aid program for the European countries with debt problems. The issue remains, though, that someone must pay for the aid, and the countries providing the funds understandably want to be reassured that the countries receiving the aid will demonstrate greater budgetary discipline. Investors expect that if European leaders eventually reach an enforceable agreement, then the European Central Bank (ECB) or another institution will provide additional aid. It appears that the European debt issue will continue to be a major influence on US financial markets for quite a while.

Also Notable:
• Weekly Jobless Claims fell to the lowest level since February
• Consumer Sentiment rose to the highest level since June
• The European Central Bank (ECB) cut rates by 25 basis points
• The Treasury will auction $66 billion in 3-yr, 10-yr, and 30-yr securities next week

Average 30 yr fixed rate:
Last week: -0.01%
This week: -0.10%

Stocks (weekly):
Dow: 12,150 +50
NASDAQ: 2,640 -10

Week Ahead
The big story in the US next week will be Tuesday’s Fed meeting. Investors will be watching for hints of additional monetary stimulus to boost the economy. The most significant economic data next week will be the monthly inflation reports. The Producer Price Index (PPI) focuses on the increase in prices of “intermediate” goods used by companies to produce finished products and will come out on Thursday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Friday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, Retail Sales will be released on Tuesday. Retail Sales account for about 70% of economic activity. Industrial Production, another important indicator of economic growth, will come out on Thursday. Philly Fed, Empire State, and Import Prices will round out a busy week. In addition, there will be Treasury auctions on Monday, Tuesday, and Wednesday.

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Roger Odoardi

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.