Published on May 14, 2012
Market Recap – Week Ending Friday, May 11, 2012
Last week saw increasing uncertainty in Europe, leading to lower stock prices and strong demand for the US Treasury auctions. Ordinarily, these factors would result in improved mortgage rates, but mortgage rates ended the week nearly unchanged from the week prior.
In closely watched elections on Sunday, voters in France and Greece strongly favored the candidates who opposed austerity measures. The results confirmed that political opposition to austerity is strong in many countries, and there is growing disagreement about the best approach to solve Europe’s problems. In Greece, the government struggled to reach a consensus, leaving in question the future of required austerity measures. EU officials threatened to withhold their next aid payment, and the possibility that Greece could leave the European Union has increased.
The high level of uncertainty in Europe caused investors to worry about the pace of global economic growth. During the week, investors moved away from risky assets in general, sending US stock markets lower. US bond markets are normally a beneficiary of such a flight to safety, but neither Treasuries nor mortgage-backed securities (MBS) posted gains last week. With rates near record lows, investors appeared to be reluctant to purchase bonds at lower yields.
This week, Retail Sales and CPI will be released on Tuesday. Retail Sales account for about 70% of economic activity. The Consumer Price Index (CPI) is the most closely watched monthly inflation report. CPI looks at the price change for those finished goods which are sold to consumers. Housing Starts and Industrial Production will come out on Wednesday, along with the detailed Minutes from the April 25 Fed meeting. Philly Fed, Leading Indicators, and Empire State Manufacturing will round out the schedule.