The biggest economic news this week was that the EU will provide a much larger aid package than previously announced. On Monday, this news caused investors to move funds to riskier assets and out of safer investments such as bonds. This week’s economic data contained few surprises. Later in the week, successful results for the long-term Treasury auctions helped bond markets, and mortgage rates ended the week near the lowest levels of the year.
Monday, the EU and the IMF surprised investors with the announcement that they will make available up to $1 trillion to support Greece and other EU members which are experiencing economic troubles. This enormous amount of aid demonstrates the commitment of the stronger European countries to maintaining the European Union and allowing the weaker countries time to recover. The Euro currency strengthened against the dollar and other currencies, and global stock markets rallied strongly. Mortgage markets were hurt by the news when investors reversed the flight to safety trade and moved funds back into riskier assets such as stocks.
March Pending Home Sales increased 5.3% from February, and were 21% higher than one year ago at this time. The Pending Home Sales index, which measure sales of existing homes based on contracts which have been signed but not yet closed, is a leading indicator for the housing sector. The index provides guidance for future Existing Home Sales reports. The chief economist of the National Association of Realtors (NAR) suggested that the home buyer tax credit has helped “stabilize the market”. Contracts had to be signed by the end of April to qualify for the tax credit, so many buyers rushed to take advantage before the deadline. As a result, the NAR chief economist expects “measurably lower sales” in May. The growth in housing sector activity will then depend largely on the performance of the economy and the labor market. The housing sector may also benefit from increased availability of jumbo mortgages and other forms of credit from non-governmental sources.
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 Tuesday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Wednesday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, the Housing Starts report is scheduled for Tuesday. The FOMC Minutes from the April 28 Fed meeting will be released on Wednesday. These detailed meeting notes often provide additional insight into the Fed’s decisions. Empire State, Leading Indicators, and Philly Fed will round out the week.