MARSHA, MARSHA, MARSHA! Rings a bell, doesn’t it? And just like a Brady Bunch parent with six children and a dog to keep track of all at once, Bond Traders have been wishing they had eyes in the back of their heads. So many very different factors are influencing the markets and direction of interest rates, and Bond Trader’s heads are spinning just to watch it all. Remember that good news for the economy spells bad news for Bonds and mortgage interest rates. When good news hits, money tends to flow into the stock market, and away from Bonds, which hurts mortgage rates. Bad news on an economic or geopolitical level tends to be good for Bonds and mortgage interest rates, as money is driven away from the stock market and into the “safe haven” of Bonds. So let’s take a look at last week, and all the various influences currently in play.

The week kicked off with a suicide car bombing in Iraq, killing the President of the US appointed Iraqi Governing Council. This was considered a major blow to US efforts to stabilize Iraq. Other important news of the week included the Philly Fed Manufacturing Index arriving much lower than expected. Then Initial Jobless Claims unexpectedly rose for a second straight week, suggesting that the all-important pace of job growth may be slowing. On the currency front, the Japanese Yen has been running higher against the US Dollar, sparking speculation that the Japanese Central Bank may be forced to intervene with another round of US Bond buying. Remember that Mortgage Bonds started their recent decline in early March, after the Japanese pulled their buying support, so a return to intervention buying would help to support Bonds. Rounding out the week was a late day announcement on Friday that Saudi Arabia is prepared to increase oil production, which would help to lower oil prices, currently at a 21-year high.

Given all these headlines running in different directions, is it any wonder that Bond trading was up-and-down last week? While mortgage interest rates moved in both directions based on the news of the day last week, there were no major changes, and rates ended the week right where they started.

FEEL LIKE YOU NEED TO APPLY FOR A SECOND MORTGAGE TO FILL UP THE GAS TANK LATELY? READ THIS WEEKS’ MORTGAGE MARKET VIEW TO FIND OUT WHAT’S HAPPENING IN THE GLOBAL OIL SCENE, AND HOW IT IMPACTS YOU.

Special Reminder: In observance of the Memorial Holiday next Monday, the next issue of the Mortgage Market Guide Weekly will be sent to you on Monday June 7th. Have a happy and safe Memorial Day Weekend!

So what’s in store for the week ahead? Most likely, we can expect more choppiness this week, especially due to the “Three Amigos” that have been influencing the markets of late: The War in Iraq, Global Terrorism and Oil Prices. Additionally, this week has an action packed Economic Calendar, with several high impact reports coming on Wednesday, Thursday and Friday.

The Bond chart below shows the up-and-down turbulence that took place last week. Although there was midweek choppiness, Bond prices and mortgage interest rates overall changed very little. Based on the news of the week for the economic and geopolitical scenes, look for Bond prices and mortgage interest rates to continue in a sideways pattern. With the current technical support and resistance levels indicated below, it would take a major event to cause interest rates to move more than .125% in either direction in the coming week.

Bottom Line: Mortgage interest rates should continue to move in a choppy, sideways manner this week.

Another TV Classic, bringing us to a hot topic and a slippery tale…black gold, “Texas Tea”, OIL. Have you noticed an increase at the pumps lately? Until a little breather came last Friday in the form of Saudi Arabia’s offer of higher oil production, oil prices have continued to gush higher at a torrid pace, bringing gasoline prices higher by the minute. Aside from the obvious concern we all share about how much a trip to the gas station might now cost, why do oil prices demand such concern on a worldwide level?

So many of the products we use in our daily life are tied to oil, many of which you may not have even known about. From the sneakers on our feet to the plastic bottles of soda we drink, oil “is in there”. China’s booming economy has placed added pressure on demand as construction and car purchasing continues to grow at a rapid pace. Here’s an interesting fact: Of the 1.3 billion people in china, 400 million people use a bicycle as their primary means of transportation. In other words, China has far more bicycles than we have people in the US! If just half of the Chinese bike-riding population decided to switch to a moped – it would immediately cause a worldwide oil shortage, and send prices soaring. This illustrates just how sensitive the oil issue really is. Further, the continued unrest in the Middle East continues to be a concern, as a terrorist act against the already short supply of oil could have an enormous economic impact on the entire world.

The main concern in our financial markets is that a continued increase in oil prices could suffocate the growing US economic recovery. The price of gasoline hovers over the $2.00 mark nationally. But interestingly enough, factoring in inflation rates, those purchasing gas in the mid-1950’s were paying a very similar price to today’s levels.

As an interesting side note on the topic of oil…take a look at Exxon Mobil. Exxon is a slow and steady mover like the turtle that always beats the rabbit. In 1987 the stock was $100 and split 2 for 1. After the '87 crash it backed off to 40, but by 1999 it was back at 90 and split again. Exxon is one of the oldest stocks on the big board and is part of the prestigious Dow 30.

But did you know that the history of Exxon is like something out of a movie? A young man sets out to conquer all in the booming oil industry at the end of the 19th century…Mr. John D. Rockefeller. Rockefeller was extraordinarily successful, yet was probably one of the most ruthless businessmen born out of the industrial age. If you weren't with him, then you were bought out, run out or taken over. Rockefeller amassed fortune upon fortune and built what is probably the largest company in the world, Exxon Mobil. Exxon is incredibly diversified, and it stretches across many different products from oil to synthetic products.

Oil will continue to be a hot news topic in the days ahead – and next time you hear the headlines, remember that more is at stake than just your trip to the local gas station!

After last week’s light load on the calendar, this week more than makes up with a string of heavy hitters sure to catch the attentions of Mortgage Bond Traders. The latter half of the week carry the releases most likely to move the markets, including Durable Orders, Preliminary GDP, the Chain Deflator and the Chicago PMI. And always of interest are Home Sales Reports – Tuesday brings Existing Home Sales and Wednesday, New Home Sales.

Remember, as a general rule, weaker than expected economic data would indicate the economy is not improving as quickly as expected, and could cause mortgage rates to improve. Positive data would indicate a strengthening economic climate, and could cause mortgage rates to gradually climb higher.

For the week of May 24 – May 29, 2004