Mel's Blog

October 24, 2012 Market News

October 24th, 2012 9:28 AM by Mel Samick

 Probably one of the costliest "oops" moments in the corporate world resulted in Google shedding $21billion in market capitalization. Google accidentally released an incomplete version of its third-quarter earnings report ahead of schedule on Thursday, and Google shares plummeted when the earnings numbers missed analysts' expectations. The blame has been put on RR Donnelley, Google's financial printing partner, who released a draft of Google's most recent quarterly earnings during the middle of the trading day, causing the stock to immediately sell-off. Google shares fell 9% before trading was halted. Now, the value of following protocol is evident. Earnings season is in full swing. Banks are showing strong results - thanks to big contributions from mortgages, while technology and other sectors are providing a cautious outlook. Many corporates seem to be holding their plans ahead of the election outcome. However, the Dow is still holding above the 13,000 mark.

A continuing stream of largely better economic data has helped mortgage rates to drift higher in recent weeks, but in view of the mighty FED buying mortgages under the QE3 program, mortgage rates do not have too much room to run higher. Ironically, the Fed's program to keep mortgage rates low, in some ways conflicts with the ultimate goal of the program, which is to foster stronger growth; stronger growth tends to push interest rates higher. It was a strong week for the economy driven mainly by the upturn in housing, especially the 15% increase in Housing Starts and a similar increase in Building Permits. Evidence of growth was also seen in the improvement in Retail Sales, Industrial Production, Builder Confidence, and the strength in the euro zone.

You can't avoid "touch" technology now. Ironically, on one side, technology is alienating us from the traditional "touch and feel" to a more online form of social networking, while on the other side it is influencing us to embrace touch-screen technology. This week, as Microsoft launches Windows 8, the stakes couldn't be higher. Playing a catch up game, Microsoft has been driving for years toward this radical overhaul of its flagship operating system. Windows 8 is Microsoft's attempt to bridge the gap between tablets and traditional PCs. It is designed to be both touch and mouse-and-keyboard-friendly, with two modes of interaction: a tile-based design unfamiliar to most Windows users, and the familiar, traditional desktop interface. So, one day you may have to say good-bye to your loyal "mouse."

The mortgage industry has been under regulatory watch for a while now. The Fed is also giving top priority to lowering mortgage rates in order to jump start the housing sector. However, many analysts are pointing out the sticky nature of mortgage rates. In a speech before the National Association for Business Economics, New York Fed President Dudley brought up the topic of primary-secondary spreads. He noted the widening in the spread between primary mortgage rates and secondary mortgage yields has "limited the drop in primary mortgage rates" and cited lack of mortgage banker competition, rep & warranty concerns, and increased guaranty fee charges by the GSEs as some of the reasons. Between capacity constraints and the increases in "G-fees", MBS analysts don't expect to see meaningful drops in mortgage rates over the near term.

Some key economic data from last week included:

·       Retail sales rose 1.1% in September after rising a revised 1.2% in August. Housing Starts soared 15% to a 872,000 seasonally adjusted annual rate in September, up from 758,000 in August. Building permits rose 12% to 894,000 in September, up from 801,000 in August. Seems that the housing sector may finally be turning the corner.

·       Industrial Production rose 0.4% in September after falling 1.4% in August. Capacity Utilization rose to 78.3% in September up from 78.0% in August.

·       Factory activity grew 3.2% in September from a year earlier.

·       Initial Claims for unemployment rose to 388,000 during the week ending Oct. 13, up from 342,000 the prior week.

Mel

Information Provided by NYCB Capital Markets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Posted in:General
Posted by Mel Samick on October 24th, 2012 9:28 AM

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