Stocks, oil down to start the week

Oil price chart created by London School of Economics via eia.gov

In the wake of the Chinese stock market's huge dropoff Monday, investors around the globe got skittish and stock indexes worldwide suffered. The Chinese government had been offering lower interest rates to encourage more market investment, but the burgeoning bubble market began to burst and the benchmark Shanghai composite index fell almost 8.5 percent, the biggest drop in eight years.

With European stock markets also in the gutter, the Dow Jones lost 128 points Monday. China has struggled to stabilize its economy, which now ranks as the 2nd biggest in the world. With that amount of influence, any sizeable change sends ripples in markets across the globe.

Domestic U.S. oil prices also hit their lowest point in four months, falling under $48 per barrel of crude oil.  Since early 2015's oil market freefall, prices had been rebounding in recent months and American oil production again started to pick up. Current market prices would indicate the output is surpassing demand, however, as prices get cheaper.

American investors remain wary leading up to this week's Fed meeting, from which more insight is expected to emerge about a timetable for raising short-term interest rates. Whatever news arises could push markets sharply in one direction or another.

New economic data looking stronger

The U.S. economy had a rough first quarter of 2015, but it's looking a little better after revised numbers came out this week. The economy shrank by about 0.2 percent from January through March of this year, much less than previously thought. The good news is that analysts are placing blame on harsh weather and a temporary West Coast trade dispute rather than more insidious long-term problems.

Since March, payroll numbers have also picked up along with wage growth - a huge indicator sought by economic officials to mark a fully complete recovery. Federal Reserve chairwoman Janet Yellen calls the wage growth "tentative" at the moment, but it's a positive sign nonetheless of real economic growth.

In addition, new home sales have risen to a seven-year high nationwide in May, showing how robust the housing market has become. The overall market is tight with existing home sales also doing very well. (In the Denver area in particular, anyone who has put a home on the market or attempted to buy knows homes in the metro area are selling extremely well, usually exceeding asking price.)

With most signs pointing toward economic improvement, many pundits are speculating when the Fed will start to raise central interest rates. Chief Yellen has stated that an inflation rate of around 2 percent is targeted before rates will really move upward. In anticipation of this coming change, mortgage interest rates have crept up slightly - but along with that, so have mortgage applications because rates are still lower than they were a year ago.

If you want to take advantage of today's very reasonable rates or get more information on market trends, call a Vertex loan officer toll-free at 877-939-0339.

April jobs report decent, but economic growth lags

Consumer confidence chart via Bloomberg.com

 

Last Friday's jobs report didn't reveal anything too terrible. An additional 223,000 jobs were added to U.S. payrolls and the national unemployment rate dropped to 5.4 percent, but it wasn't good enough to suggest any big changes are coming soon.

Part of the problem is that average wage growth barely budged, rising 0.1 percent in April. Despite the steadily falling unemployment rates, salaries have remained fairly flat - this is the opposite of the inflationary trends Federal Reserve officials want to see before making any policy changes.

The huge drop in oil prices in late 2014 and early 2015 has taken a hit on one of the fastest-growing U.S. industries in recent years. In April alone, domestic oil and gas well drilling dropped 14.5 percent, helping pull down overall U.S. industrial output 0.3 percent.

Even though gas prices are relatively low, consumer confidence is also lagging. A University of Michigan report shows consumer confidence dropped in the past month to its lowest point since last October (see chart above).

With all of these economic trends showing lackluster growth, and therefore pushing back a move by the Fed to raise interest rates, the S&P 500 index soared Friday to another all-time high. Low interest rates promote a positive growth environment for homeowners, car owners and business owners to build savings, invest more money into the market or pump back into the retail economy.

Is the oil market out of touch?

 

Prices are rising, but can demand sustain it?

Since last year's drastic dropoff in oil prices, when the cost of a barrel of crude oil sank from $114 to under $50 per barrel in the span of a few months, costs have begun moving up again.

After reaching a low of $46 a barrel in January, by Wednesday this week the going rate climbed to as high as $69. Since January, American oil production has dropped to stay in line with more tempered worldwide demand.

But are the recent oil price gains belying the continued weak demand, in reality?

"In the short-term, futures prices do not necessarily reflect accurately the physical market," Italian oil executive Dario Scaffardi told Reuters.

Data from OPEC and the International Energy Agency show that more oil is still being produced per day than is being consumed. If oil prices continue to gain too much, it could set the market up again for another crash similar to last summer.

Wall Street suffers jitters

Meanwhile, Wall Street investors are jittery following a weak first quarter of 2015 for GDP growth. The Standard & Poor index closed Wednesday at its lowest point in the past month.

U.S. Gross Domestic Product growth in part has been stifled by a stronger U.S. dollar, ironically, because higher prices abroad make American products less appealing, and thus hurts trade profit margins.

April's job report figures will be released on Friday, which will either reaffirm weaker growth in 2015 or point to a shift in the other direction. As long as economic growth flounders or shows mixed results at best, it's looking more and more likely that the Federal Reserve will push an interest rate hike back into the future.

The Fed ready to be patient no more

But rate hikes could still be delayed depending on market activity

You may have heard, the Federal Reserve held a meeting this week. Dropping a single word out of their language, "patient," was enough to indicate their timeline for starting an increase on short-term interest rates.

With unemployment rates falling steadily, currently at about 5.5 percent nationwide, Fed officials again lowered the range of when they believe unemployment will be low enough to allow inflation to occur. They now say the target range is between 5 and 5.2 percent.

Embracing recent positive economic reports, Fed officials are no longer saying they will be "patient" when it comes time to start raising rates for the first time in nearly 10 years. The earliest this rate hike could come is in just a couple months, June 2015.

Oil prices rise, U.S. dollar slightly drops

Crude oil prices rose about 2 percent on the week to $45.72 per barrel, which boosted stocks while the U.S. dollar weakened slightly. A stronger U.S. dollar means that American goods are more expensive abroad and consequently, fewer products sell.

Fed chief Janet Yellen will continue to see which direction markets go and any movement in job creation/unemployment rates before determining when the timing is right to move interest rates upward. In the meantime, rates remain at very attractive levels for homeowners and home buyers.

Markets react in fear of rate hikes

 The U.S. dollar is on a strong upward trend in early 2015.

Last Friday, the February jobs report was released with more positive data for the U.S. economy. The overall unemployment rate dropped to 5.5 percent with another 295,000 jobs added, which capped the best 12 months of consistent job growth in the past 20 years.

In addition, the U.S. dollar continues to get stronger compared with other currencies, as the European Union launches a new quantitative easing program. The irony of all of these glowing economic indicators for the U.S. is that stock markets are shaking under the assumption that interest rates will increase by the middle of 2015.

It has been widely expected that the Federal Reserve will begin to push a rate hike by June 2015, which would be the first increase in nearly a decade. If rates are pushed upward - including mortgage interest rates - investors fear it would have a damaging effect on continued growth. Despite many happy economic signs, lingering issues such as stagnant wage growth and low inflation are reason enough for some to urge Fed officials to hold off on raising rates.

If the U.S. dollar continues to shine while currencies around the world suffer, global economic weakness will in turn temper U.S. growth. Financial markets rest on a see-saw that is constantly tipping in one direction or another. If it slides too far in one direction, there's always the potential for turmoil to erupt before it's corrected.

Gas prices start creeping upward; markets rebounding?

Plummeting oil prices have threatened Colorado's oil and gas production, one of the state's fastest-growing industries.

Has the oil crash officially bottomed out?

The dirt cheap gas prices we've been enjoying as consumers over the past two months have started creeping back up again, averaging $2.20 per gallon nationwide. Still, this is a far cry lower than the average price over most of 2014.

The slight rise in the cost of crude oil, reaching above $60 per barrel, coincided with a stronger week for stock markets. The Standard and Poor's 500 index hit a record high Friday, in part due to the boost in oil stocks. The Dow Jones industrial average nearly crept up to its all-time high set in December 2014, right over 18,000.

Investors were also encouraged by German economic growth and news that Greece, plagued by debt problems, could reach a deal with creditors. When stocks climb upward, investors typically put less money into "safer havens" such as bonds, which generally indicates interest rates also climbing.

Positive jobs news in January

Stock markets have also responded favorably to stronger jobs reports for January. More than 257,000 new jobs were added to U.S. payrolls in the first month of 2015, and more importantly, wages increased by 0.5 percent on average to $24.75 per hour. Stagnant wage growth has been a sticking point for the gradually recovering economy.

Federal Reserve officials will continue to closely monitor a broad range of economic trends before taking action to raise short-term interest rates. Until then, mere whispers of a move by Fed leaders could send mortgage rates higher. Currently, average mortgage rates sit more than half a point lower than a year ago this week.