For the week ended September 23, 2011

Week in Review: Mortgage rates drop to once unthinkable lows at less than 4% Stocks plunge as investors fear global slowdown

• IMF cuts global growth forecast
• Fed debuts "Operation Twist" to push interest rates lower
• S&P cuts debt rating of Italy and some of its banks
• Eurozone data shows slowdown
• Moody's downgrades U.S. and Greek banks

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Global stocks tumbled this week in response to evidence that global growth is decelerating and increasing fears of a Greek debt default. As investors dumped all things considered risky, the yield on the 10-year U.S. Treasury note fell to a record low, and oil dipped below $80 per barrel. Fresh data, showing a decline in manufacturing activity in both China and Europe, added to the worries, and World Bank President Robert Zoellick warned that the global economy is in a "danger zone." Vows by G20 officials to preserve banking stability and markets and new efforts by the U.S. Federal Reserve Board to reduce borrowing costs failed to significantly buoy sentiment as banks across the eurozone and the United States were downgraded and data everywhere showed a downturn.

Stocks Post Worst Weeky Loss in 3 Years
Sept. 23, 2011
Fears of a possible Greek default and the U.S economy dipping back into recession pushed the blue-chip index to its worst weekly decline in nearly three years. Brendan Conway has details on The News Hub.

For a 30-year fixed-rate mortgage, the typical rate for solid borrowers had been 4.09% last week and early this week, according to mortgage finance giant Freddie Mac. That's within a whisker of the record low of 4.08% set in 1950 and 1951. The Fed's action dropped it well into record territory.

Mortgage professionals said many companies were making loans slightly more expensive Friday because their loan pipelines were full of more refinance requests than they could easily handle

U.S. and global economic news

IMF cuts global growth forecast
The International Monetary Fund cut its forecast for global growth to 4% and warned that severe repercussions to the global economy can be avoided only if eurozone nations strengthen their banking system and the United States gets its fiscal house in order. The IMF said the U.S. and European economies face recession and a lost decade of growth similar to what happened in Japan if they fail to take concerted action to revamp their economic policies.

Fed debuts "Operation Twist" to push interest rates lower
The U.S. Fed said on Wednesday that in a move to further reduce borrowing costs to keep the economy from falling into recession, it will replace much of the short-term debt in its portfolio with longer-term Treasuries. In what economists have dubbed "Operation Twist," the Fed will actively sell Treasuries with maturities of three years and less and buy Treasuries with maturities of six- to 30-years.The Fed will spend $400 billion on the program that is intended to put downward pressure on longer-term interest rates to make it cheaper for consumers to finance long-term purchases.

S&P cuts debt rating of Italy and some of its banks
Standard & Poor's Ratings Services cut Italy's sovereign debt rating one notch, saying the nation's weak economic growth and fragile government coalition will make it harder to head off the crisis sweeping the eurozone. The agency went so far as to say that paralysis in Prime Minister Silvio Berlusconi's governing coalition has become an obstacle to overhauling the country's stagnant economy. In the wake of the sovereign downgrade, S&P also cut the ratings of several Italian lenders. The ratings agency cut the long-term ratings of Italian banking giant Intesa Sanpaolo SpA and investment bank Mediobanca SpA to single-A from A-plus to bring the lenders' credit rating in line with the host country. S&P also cut its rating of the Italian subsidiaries of French bank BNP Paribas. The long-term rating of BNP's Findomestic Banca was cut to A from A+, while the long- and short-term rating on the French lender's Banca Nazionale del Lavoro subsidiary was lowered to A+/A-1 from AA-/A-1+.

Eurozone data shows slowdown
Business activity in the eurozone contracted in September for the first time in more than two years. The contraction is seen as the strongest evidence to date that the global slowdown and European debt crisis are pushing the eurozone to the brink of recession. The eurozone PMI (Purchasing Managers' Index) for September dropped 1.5 points to 49.2, according to data provider Markit. A drop below 50 signals contraction.

German investor confidence drops to lowest level in two-and-a-half years
German investor confidence fell to the lowest level in more than two-and-a-half years in September as Europe's debt crisis and global slowdown damped the outlook for growth. The ZEW Centre for European Economic Research said its index of investor and analyst expectations, which aims to predict developments six months in advance, fell to minus 43.3 from minus 37.6 in August.

U.S. housing starts fall to three-month low
U.S. housing starts dropped 5% to a 571,000 annual rate, a three-month low. Residential construction has been constrained by foreclosures, declining prices, and a lack of employment. Still building permits, which are proxies for future construction, climbed 3.2% to a 620,000 annual rate in August. That was the highest level this year.

Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times; Forbes.com; CNNMoney.com; msnbc.com. The Wall Street Journal Digital News

This is not a loan commitment. Programs are subject to change without notice and are only available to qualified borrowers. Underwriting terms and some restrictions may apply.

The week ahead

• The U.S. Census Bureau reports on new home sales on Monday, September 26, and on durable goods orders on Wednesday, September 28.
• The Standard & Poor's/Case-Shiller Home Price Indices are released on Tuesday, September 27.
• Japan's Ministry of Economics, Trade and Industry distributes its industrial production figures on Thursday, September 29.
• Japan's Ministry of Internal Affairs and Communications releases its consumer price index on Thursday, September 29.
• The U.S. Bureau of Economic Analysis reports on personal income and spending on Friday, September 30.

Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times; Forbes.com; CNNMoney.com; msnbc.com.

This is not a loan commitment. Programs are subject to change without notice and are only available to qualified borrowers. Underwriting terms and some restrictions may apply.