Market Update 09/06/2010
Market Comment
Mortgage bond prices fell last week pushing interest rates moderately higher. The up and down trading pattern continued with rates rising and falling throughout the week. Strong stocks mid week and stronger than expected ISM Index data didn’t help rates. Consumer confidence came in at 53.5, higher than the expected 49.9 mark and pressured rates. Weekly jobless claims and factory orders data were near expectations. Rates rose by about 1/4 of a discount point for the week.
The Treasury auctions and the weekly jobless claims data will be the most important releases this week. Expect more volatility, as stocks and bonds are likely to continue their back and forth trading pattern.
LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| 3-year Treasury Note Auction |
Tuesday, Sept. 7 |
None | Important. $33 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| 10-year Treasury Note Auction | Wednesday, Sept. 8, 1:15 pm, et |
None | Important. $21 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Fed “Beige Book” | Wednesday, Sept. 8, 2:00 pm, et |
None | Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates. |
| Consumer Credit | Wednesday, Sept. 8, 3:00 pm, et |
Down $1.1 billion | Low importance. A significantly larger than expected increase may lead to lower mortgage interest rates. |
| Trade Data |
Thursday, Sept. 9, |
$48 billion deficit | Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. |
| Weekly Jobless Claims |
Thursday, Sept. 9, |
485k | Important. An indication of employment. An increase in jobless claims may bring lower rates. |
| 30-year Treasury Bond Auction |
Thursday, Sept. 9, |
None | Important. $13 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates. |
Trade Data
In the distant past the US economy tended to be viewed as relatively unaffected by economic activity in other countries. However, increased trades with other countries and an increased reliance on foreign purchases of US debt have generated a market awareness of trade-related issues. The exchange rate of the dollar and foreign trade flows are interrelated. One must buy dollars to purchase US exports, and sell dollars to buy imports. Likewise, foreign investment in US debt requires the purchase of US dollars, and is thus affected by exchange rates.
Each month the Commerce Department gathers an enormous amount of detailed data on exports and imports. The data is broken between goods and services trade. The overall trade balance is the dollar difference between US exports and imports on a seasonally adjusted basis. The report also highlights trade flows between the US and various partners. Since the mid-1970’s, US imports of consumer and capital goods have exceeded exports, so a merchandise trade deficit has existed. The US has always maintained a service trade surplus, and because this surplus is not enough to offset the merchandise trade deficit, a net export deficit has resulted.
Due to the overwhelming amount of data considered, trade is difficult to forecast, and can present surprises. For a variety of reasons, the financial markets will often be unaffected by surprises in trade data. However, the data still has the ability to cause mortgage interest rate volatility.
Market Update 08/30/2010
Market Comment
Mortgage bond prices fell slightly last week pushing interest rates higher. Unfortunately the seesaw trading pattern continued with rates rising and falling throughout the week. We started the week with stronger than expected Industrial Production and Capacity Use data pressuring mortgage interest rates higher. Stocks fell mid-week following a shocking 27.2% decline in existing home sales and weaker than expected durable goods orders. This helped us recover some of the earlier losses. Friday was choppy with 1/4 point up and down swings occurring throughout most of the morning. Despite all the volatility we were able to stay relatively flat overall for the week as rates rose by about 1/8 of a discount point.The employment report Friday will be the most important release this week. Expect more volatility.LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| Personal Income and Outlays |
Monday, Aug. 30, |
Up 0.3%, Up 0.3% |
Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates. |
| PCE Core Inflation |
Monday, Aug. 30, |
Up 0.1% |
Important. A measure of price increases for all personal consumption. Weaker figure may help rates improve. |
| Consumer Confidence |
Monday, Aug. 30, |
51.3 |
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
| ADP Employment |
Tuesday, Aug. 31, |
-20k | Important. An indication of employment. A large decrease in payrolls may bring lower rates. |
| ISM Index |
Tuesday, Aug. 3, |
53.3 | Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates. |
| Construction Spending |
Tuesday, Aug. 3, |
Down 0.4% | Low importance. An indication of economic strength. A significant decrease may lead to lower rates. |
| Revised Q2 Productivity |
Wednesday, Sept. 1, |
Down 1.5% |
Important. A measure of output per hour. Improvement may lead to lower mortgage rates. |
| Factory Orders |
Wednesday, Sept. 1, |
Up 0.5% | Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
| Employment |
Friday, Sept. 3, |
9.6%, Payrolls -120k |
Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates. |
Productivity Productivity is the rate at which goods or services are produced. It is most commonly defined in terms of labor, which is the contribution of people to the process. Labor costs represent about two thirds of the value of the output produced. The Bureau of Labor Statistics of the US Department of Labor releases the most widely cited productivity statistics quarterly and annually. Increased productivity is often credited for economic growth with little signs of inflation.
Productivity is significant in that as it increases, businesses can produce more with the same or less input. This wealth building effect is vital to the US economy. As productivity increases, the US economy generally performs better. As productivity decreases, the economy generally suffers. While the bond market generally favors signs of weakness in the economy, bonds tolerate growth as long as the economic environment shows little or no inflationary pressures. Keep in mind that rates remain very favorable. Now is a great time to avoid the uncertainty surrounding continued market volatility.
Market Update 08/23/2010
Market Comment
Mortgage bond prices rose last week helping recover some of the recent losses. We started the week with weaker stocks helping the mortgage bond market. Overall trading was choppy with data coming in all over the place. Higher than expected core producer price index data mid week helped erase most of the Monday morning improvements. This was countered by higher than expected jobless claims Thursday that pressured stocks lower. The jobless numbers remain troublesome. It is difficult for the economy to expand with a return of some jobs. Rates fell by about 1/8 of a discount point for the week.
The GDP data will be the most important release this week. The Treasury auctions will continue to receive focus as record debt continues to hit the financial markets.
LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| Existing Home Sales |
Tuesday, Aug. 24, |
Down 4.3% | Low importance. An indication of mortgage credit demand. A significant decrease may lead to lower rates. |
| 2-year Treasury Note Auction |
Tuesday, Aug. 24, |
None | Important. $37 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Durable Goods Orders |
Wednesday, Aug. 25, |
Up 3.0% | Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates. |
| New Home Sales |
Wednesday, Aug. 25, |
Up 2.4% | Important. An indication of economic strength and credit demand. Weakness may lead to lower rates. |
| 5-year Treasury Note Auction |
Wednesday, Aug. 25, |
None | Important. $36 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Weekly Jobless Claims |
Thursday, Aug. 26, |
530k | Important. An indication of employment. An increase in jobless claims may bring lower rates. |
| 7-year Treasury Note Auction |
Thursday, Aug. 26, |
None | Important. $29 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Q2 GDP second revision |
Friday, Aug. 27, |
Up 1.4% | Important. The aggregate measure of US economic production. Weakness may lead to lower rates. |
| U of Michigan Consumer Sentiment |
Friday, Aug. 27, |
70 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
Bailout
It was August 2007 when rates on jumbo loans disconnected from reality and skyrocketed. This was the beginning of the credit crisis, which to some extent has touched everybody on planet earth.
Since then we have been through trillion dollar bailouts, a near collapse of the banking and automotive industries, a stock market in freefall and house prices not too far behind. Stocks have recovered somewhat, and in some places housing is showing some life as well. Most economic pundits believe that we are not out of the woods and things may become worse before they get better. The good news is that through actions from the Federal Reserve interest rates are at all time lows, presenting an opportunity for many homeowners to receive a self funded bailout by dramatically reducing the interest rate on their mortgage. Nobody knows how low rates will go but there is certainty that rates are at historic lows and they will not last forever. Saving money today makes a lot of sense in these difficult and uncertain times.
Market Update 08/16/2010
Market Comment
Mortgage bond prices were higher last week applying downward pressure on mortgage rates. Turmoil and volatility remain high with wide swings occurring in both stocks and bonds on an almost daily basis. The economic outlook remains clouded at best. Weekly jobless claims and the trade deficit remained high, hindering recovery in the jobs market. As expected, the Federal Reserve will restart the quantitative easing program by purchasing Treasury bonds.
Rates fell by about 1/4 of a discount point for the week.
The most important data this week will be the Producer Price Index Tuesday. Housing starts and LEI data may also move the financial markets.
LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| Housing Starts |
Tuesday, Aug. 17, |
Up 2.2% | Important. A measure of housing sector strength. Weakness may lead to lower rates. |
| Producer Price Index |
Tuesday, Aug. 17, |
Up 0.2%, |
Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates. |
| Industrial Production |
Tuesday, Aug. 17, |
Up 0.5% | Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
| Capacity Utilization |
Tuesday, Aug. 17, |
74.5% | Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates. |
| Weekly Jobless Claims |
Thursday, Aug. 19, |
450K | Important. An indication of employment. An increase in jobless claims may bring lower rates. |
| Leading Economic Indicators |
Thursday, Aug. 19, |
Up 0.2% | Important. An indication of future economic activity. Weakness may lead to lower rates. |
| Philadelphia Fed Survey |
Thursday, Aug. 19, |
5.10 | Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. |
Fed Results
The Federal Open Market Committee kept rates unchanged last week at the historically low levels. The remarks following the meeting were bond friendly. They indicated the pace of economic recovery slowed in recent months. Inflation is expected to remain subdued for some time. Most importantly they confirmed the suspicions that they would restructure their quantitative easing actions in an effort to continue to keep rates low for an extended period of time and to spur the economy.
The Fed stated they would keep holdings of securities at current levels through reinvesting funds from maturing mortgage-backed securities into longer term US Treasuries. The Fed is concerned the recovery is waning and specifically noted that it was “more modest” than previously thought. Consumer spending increased gradually but there remain concerns that increasing unemployment along with tight credit conditions may limit increases in the future.
The Fed decision was a result of a 9-1 vote as the lone dissenter disagreed with stance of keeping rates low for an extended period of time. He was concerned that position would limit the Fed’s ability to raise rates in the future and also disagreed with the quantitative easing program.
Interest rates remain historically favorable. The demand for bonds remains high pushing rates lower. Anytime prices rise substantially there is always a danger of a correction. The big unknown is if or when that correction may come. For now it remains wise to take advantage of mortgage interest rates at their current levels.
Market Update 08/09/2010
Market Comment
Mortgage bond prices were near unchanged last week holding rates in check. Stock strength the early part of the week caused bonds to struggle. Weaker than expected personal income, outlays, PCE Core, and factory orders data helped bonds bounce back a bit. Stocks extended their gains Wednesday once again at the expense of bonds. Higher than expected weekly jobless claims had investors jittery heading into the employment report. The jobs report released Friday confirmed fears that unemployment remains high in the US.
Rates fell by about 1/8 of a discount point for the week.
The most important event this week will be the Fed meeting Tuesday. The Treasury auctions may also move the marketsLOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| Preliminary Q2 Productivity |
Tuesday, Aug. 10, |
2.8% | Important. A measure of output per hour. Improvement may lead to lower mortgage rates. |
| 3-year Treasury Note Auction |
Tuesday, Aug. 10, |
None | Important. $34 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Fed Meeting Adjourns |
Tuesday, Aug. 10,2:15 pm, et |
No changes | Important. Few expect the Fed to change rates, but some volatility may surround the adjournment of this meeting. |
| Trade Data |
Wednesday, Aug. 11, |
-42.3B | Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. |
| 10-year Treasury Note Auction |
Wednesday, Aug. 11, |
None | Important. $24 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| 30-year Treasury Bond Auction |
Thursday, Aug. 12, |
None | Important. $16 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates. |
| Consumer Price Index |
Friday, Aug. 13,8:30 am, et |
Unchanged Core up 0.1% |
Important. A measure of inflation at the consumer level. Lower figures may lead to lower rates. |
| Retail Sales |
Friday, Aug. 13, |
Down 0.2% | Important. A measure of consumer demand. Weakness may lead to lower mortgage rates. |
| U of Michigan Consumer Sentiment |
Friday, Aug. 13, |
67.2 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
| Business Inventories |
Friday, Aug. 13, |
Up 0.1% | Low importance. An indication of stored-up capacity. A significantly large increase may lead to lower rates. |
Bond Purchases
There was talk last week that the Fed may resume the purchases of mortgage-backed securities in order to try to boost the struggling US economy. Generally when there is more demand for a bond the price increases and rates fall. This could push mortgage interest rates even lower than their current historic levels. The Wall Street Journal reported that the Fed might make “a modest but symbolically important change” in how they manage their securities portfolios. Analysts indicate the Fed could use proceeds from maturing mortgage bonds to restart their MBS buying. We should hear some news regarding this following the Fed meeting this week.
Market Update 08/02/2010
Market Comment
Mortgage bond prices rose last week pushing mortgage interest rates lower. Tame inflation readings and lower than expected US economic growth figures helped mortgage interest rates remain very favorable. The employment cost index came in as expected while the gross domestic product data showed a smaller than expected increase. The Treasury auctions generally went well and trading in stocks remained choppy.
Rates fell by about 3/8 to 1/2 of a discount point for the week.
The most important data this week will be the employment report Friday. PCE inflation data and ADP employment may also move the markets.
LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| Construction Spending |
Monday, Aug. 2, |
Down 1.0% | Low importance. An indication of economic strength. A significant decrease may lead to lower rates. |
| ISM Index |
Monday, Aug. 2, |
53.5 |
Important. A measure of manufacturer sentiment. A large decline may lead to lower mortgage rates. |
| Personal Income and Outlays |
Tuesday, Aug. 3, |
Income up 0.2%, |
Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates. |
| PCE Core |
Tuesday, Aug. 3, |
Up 0.1% | Important. An indication of inflation. A lower figure may lead to lower rates. |
| Factory Orders |
Tuesday, Aug. 3, |
Up 0.8% | Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
| ADP Employment |
Wednesday, Aug. 4, |
Up 30k | Important. An indication of employment. Weakness in payrolls may bring lower rates. |
| Employment |
Friday, Aug. 6, |
Unemp. @ 9.6%, |
Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates. |
| Consumer Credit |
Friday, Aug. 6, |
Down $3b | Low importance. A significantly large increase may lead to lower mortgage interest rates. |
Core PCEThe US Department of Commerce’s Bureau of Economic Analysis releases the core PCE price index. The report provides the average increase in costs for personal consumption expenditures excluding food and energy. As of July 2009 the figure now includes food services in the figure.
The report is significant in that the Fed uses the PCE in determining inflation as opposed to the prior use of the consumer price index. The reports vary in that the CPI uses a predetermined pricing of a basket of goods and services for several years while the PCE data uses pricing of expenditures the changes from quarter to quarter. An important difference is also the fact that PCE includes the price of spending for and on behalf of households. This includes health care spending paid for a household by a business. The CPI only reflects out of pocket expenses paid directly by consumers.
While inflation fears remain subdued as of late there are concerns that inflation could eventually emerge. Taking advantage of rates at these historically low levels makes sense with so much uncertainty in the US economy.To unsubscribe, please hit “reply” and include unsubscribe in the subject line.
Market Update 07/26/2010
Market Comment
Mortgage bond prices rose last week pushing mortgage interest rates lower. Higher than expected weekly jobless claims and continued claims helped mortgage interest rates remain very favorable. Higher than expected existing home sales and leading economic indicators data prevented rates from improving dramatically. Stocks remained volatile, which also resulted in some mortgage interest rate volatility.
Rates fell by about 1/8 of a discount point for the week.
The most important data will be the gross domestic product and employment cost index. The Treasury auctions may also result in mortgage interest rate volatility as foreign appetite for US debt instruments is gauged
LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| New Home Sales |
Monday, July 26, |
Up 12.6% | Important. An indication of economic strength and credit demand. Weakness may lead to lower rates. |
| Consumer Confidence |
Tuesday, July 27, |
51.5 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
| 2-year Treasury Note Auction |
Tuesday, July 27, |
None | Important. $38 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Durable Goods Orders | Wednesday, July 28, 8:30 am, et |
Up 1.25% | Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates. |
| 5-year Treasury Note Auction | Wednesday, July 28, 1:15 pm, et |
None | Important. $37 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| 7-year Treasury Note Auction | Thursday, July 29, 1:15 pm, et |
None | Important. $29 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Fed “Beige Book” | Thursday, July 29, 2:00 pm, et |
None | Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates. |
| Q2 Advance GDP |
Friday, July 30, |
Up 2.5% | Very important. The aggregate measure of US economic production. Weakness may lead to lower rates. |
| Q2 Employment Cost Index |
Friday, July 30, |
Up 0.5% | Very important. A measure of wage inflation. Weakness may lead to lower rates. |
| U of Michigan Consumer Sentiment |
Friday, July 30, |
66.2 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
Fed “Beige Book”
The Fed “Beige Book” is a summary of economic conditions from each of the 12 Federal Reserve regional districts. The release takes place eight times a year approximately two weeks ahead of each of the Federal Open Market Committee meetings. The report is used at the FOMC meetings, which tends to be one of the most influential events in the market.
Market participants are continually attempting to determine what FOMC interest rate policy will be ahead of the next meeting. Any deviation from expectations usually results in extreme short-term market volatility. The timing of the “Beige Book” provides analysts a valuable look at one of the many factors the FOMC consider.To unsubscribe, please hit “reply” and include unsubscribe in the subject line.
Market Update 07/19/2010
Market Comment
Mortgage bond prices rose pushing mortgage interest rates lower. Retail sales figures came in lower than expected with a 0.5% decrease. The Treasury auctions were mixed but didn’t result in much volatility. Inflation generally remained in check as the producer price index fell 0.5%, lower than the expected 0.2% decline. Core consumer prices were slightly higher than expected with a 0.2% increase. Weekly jobless claims were not as bad as expected but continued claims increased which was bond friendly. Significant stock weakness Friday helped mortgage interest rates improve. Rates fell by about 5/8 of a discount point for the week.
The most important data will be the housing starts Tuesday. Weekly jobless claims and leading economic indicators data will also be important. Be cautious in this normally lackluster mid-summer trading environment as stocks remain very volatile and economic conditions remain uncertain.
LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| Housing Starts |
Tuesday, July 20, |
Down 0.5% | Important. A measure of housing sector strength. Weakness may lead to lower rates. |
| Weekly Jobless Claims |
Thursday, July 22, |
420k |
Important. An indication of employment. Higher claims may result in lower rates. |
| Existing Home Sales |
Thursday, July 22, |
Down 9.7% |
Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates. |
| Leading Economic Indicators |
Thursday, July 22, |
Down 0.4% | Important. An indication of future economic activity. Weakness may lead to lower rates. |
Housing StartsHousing starts data is a leading indicator of the state of our economy. This report, provided by the Bureau of the Census, takes into account data from both single-family homes and multi-family dwellings. Building permits are also released with the housing starts data. By knowing the number of permits issued monthly, analysts can attempt to estimate for the upcoming months. Normally, starts are 10% higher than permits since all locations are not required to have a building permit.
Housing starts and permits give a warning of future economic activity. In effect, a rise in housing starts can lead to a fall in the bond market and vice versa. Consumers tend to hold off on the purchase of new homes, new cars, and other big-ticket items if they are worried about the future of the economy. Housing is an important part of our economy. Continued declines in housing starts can lead to continued economic slowdown and essentially a deeper recession. On the other hand, increases in housing starts could signal a possible reversal.
From the opposite perspective, changes in interest rates often lead to changes in housing starts. High interest rates can cause a significant decline in home sales, which can lead to a drop in housing starts. Just the opposite happens when rates drop and is one of the additional reasons the Fed is trying to keep rates low. Low mortgage rates affect both home sales and housing starts.
The housing market across the country is a vital component in sustaining the economy. The continued weakness of the housing market has many worried. Many economists believe housing will continue to suffer.
There is still uncertainty regarding the future state of the economy. The Fed minutes indicate growth expectations are lower. The Fed Chairman has stated that the timing of an economic recovery was “highly uncertain.”
Mortgage interest rates are historically low. A cautious approach is wise to protect against future volatility. Rates could head lower but there are no guarantees. We all remember the housing price corrections that came when many people thought prices would only go higher. While rate spikes are not expected any time soon, they are still a lingering possibility.
Market Update 07/12/10
Market Comment
Mortgage bond prices were near unchanged holding rates unchanged overall for the week. We started in positive territory as rates held low following the extended holiday weekend. Unfortunately some considerable stock strength pressured mortgage bonds lower and rates higher mid week. There wasn’t much data but the weekly jobless claims did come in better than expected which didn’t help rates. Rates initially fell by about 1/8 of a discount point the beginning of the week only to have those improvements erased Wednesday afternoon and Thursday morning.
The most important data will be the inflation releases the latter portion of the week. The Treasury will have another round of record auctions with a 3-year auction Monday, 10-year auction Tuesday, and a 30-year auction Wednesday. Foreign appetite for US debt will continue to play a key role in the ability of interest rates to remain low.
LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| Trade Data |
Tuesday, July 13, |
-40.3B | Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. |
| Retail Sales |
Wednesday, July 14 |
Down 0.3% | Important. A measure of consumer demand. Weakness may lead to lower mortgage rates. |
| Business Inventories |
Wednesday, July 14 |
Down 0.2% | Low importance. An indication of stored-up capacity. A significantly large increase may lead to lower rates. |
| Fed Minutes |
Wednesday, July 14 |
None | Important. Details of the last Fed meeting will be thoroughly analyzed. |
| Producer Price Index |
Thursday, July 15,8:30 am, et |
Up 0.1% Core up 0.1% |
Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates. |
| Industrial Production |
Thursday, July 15, |
Up 0.2% | Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
| Capacity Utilization |
Thursday, July 15, |
74.2 | Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates. |
| Philadelphia Fed Survey |
Thursday, July 15, |
8.6 | Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. |
| Consumer Price Index |
Friday, July 16, |
Up 0.1% Core unchanged |
Important. A measure of inflation at the consumer level. Lower figures may lead to lower rates. |
Retail Sales
Retail sales data is the first indication of weakness or strength in consumer spending released each month. The Bureau of the Census of the US Department of Commerce provides information on how much the consumer spends on the purchase of goods. This data provides the consumption part of the gross domestic product. Retail sales data represents merchandise sold for cash or credit by retailers. Durable goods, such as autos, make up 35% of the figure. The balance consists of non-durables such as gasoline, restaurants, and general merchandise.
There are several drawbacks to the report. The data covers purchases of goods only, not services. It is also not adjusted for inflation and is extremely volatile. Economists are concerned that the current economic uncertainty will continue to curtail consumer-spending habits. Consumers have generally been given credit for sustaining the economy even amid the economic turmoil.
Market Update 07/05/2010
Market Comment
Mortgage bond prices rose last week pushing mortgage interest rates lower. We started the week in positive territory as oil prices fell amid reports that supplies increased and adverse weather may miss the Gulf. Stocks generally struggled. Global economic instability continued which resulted in increased demand for mortgage bonds. The employment report was mixed with the unemployment rate a better than expected 9.5%. However, the payrolls component was weaker than expected and helped bonds stay positive Friday morning. Rates fell by about 1/2 of a discount point for the week.
Traders will look to stocks, oil prices, and continued global conditions with the lack of significant data this week. The bond market is closed Monday for the holiday. Trading conditions may be choppy Tuesday morning as trading resumes following the extended holiday weekend.
LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| Bond Market Closed |
Monday, July 5 |
Important. Closed for 4th of July Holiday. Shortened trading week may result in interest rate volatility. | |
| Weekly Jobless Claims |
Thursday, July 8, 8:30 am, et |
450k |
Important. An indication of employment. Higher claims may result in lower rates. |
| Consumer Credit |
Thursday, July 8, 3:00 pm, et |
Down $2 billion |
Low importance. A significantly large increase may lead to lower mortgage interest rates. |
Credit DemandInflation is typically the most important focus for the mortgage interest rate market. Inflation remains a concern as the Federal Government continues to print and spend money in an effort to spur the economy. Unfortunately, mortgage interest rates also continue to be pushed around by gyrating stocks and weak demand as performance uncertainty looms. Most of the recent increases in interest rates have come following stronger stocks. As stocks struggle we often see rates improve. In addition, mortgage bonds have benefited from global economic uncertainty as investors search for safe havens amid sovereign debt defaults in Greece. This flight to quality buying of mortgage bonds has pushed prices higher and mortgage interest rates lower.
The level of interest rates reflects the balance between the supply of money from investors and the demand for money by borrowers. Rising inflationary expectations and uncertainty about the performance of the debt cause investors to require higher rates of return on investments to compensate for the erosion of the principal that eventually is returned to them or the risk of non-performance. Regardless of inflation levels, though, rising economic activity can increase the demand for investors’ funds, and thereby lead to higher interest rates. Investors pulling money out of bonds and into stocks could pressure mortgage rates.
The demand for money diminishes as the economy struggles. The Fed lowers interest rates as an incentive to businesses and consumers to increase their borrowings. The Fed hopes manufacturers will increase their investments in plants, equipment and inventories and that consumers will push housing construction along with consumer spending and with that, consumer debt.
Analysts will monitor this week’s consumer credit levels. There is much debate in the financial community about the future. Economists, market analysts, and traders all seem to have a different opinion about the future state of the economy and especially whether or not we have hit the bottom of the economic slide. One thing most market participants agree on is both the bond and stock markets are going to see additional volatility. Now is a great time to take advantage of rates at the still historically favorable levels.
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