Market Update 11/30/2009
Market Comment
Mortgage bond prices rose last week pushing mortgage interest rates lower. The economic data continues to be mixed. Personal income, outlays, and PCE inflation data were stronger than expected. Trading was thin and erratic. Thin trading conditions, news of the looming debt crisis in Dubai and a continued influx of Fed money into the mortgage bond market helped rates improve.
Interest rates finished the week improved by about 1/2 of a discount point.
The employment report will be the most important release this week. This is one of those weeks where there are many economic releases classified as very important or important. The potential for market volatility is increased when these types of reports are released. Be alert throughout the entire week.
LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| Construction Spending |
Tuesday, Dec. 1, |
Down 0.4% |
Low importance. An indication of economic strength. Significant weakness may lead to lower rates. |
| ISM Index |
Tuesday, Dec. 1, |
54.8 |
Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates. |
| ADP Employment |
Wednesday, Dec. 2, |
-155,000 |
Important. A measure of employment. Payroll weakness may bring lower rates. |
| Fed “Beige Book” | Wednesday, Dec. 2, Â 2:00 pm, et |
None |
Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates. |
| Revised Q3 Productivity |
Thursday, Dec. 3, |
8.5% |
Important. A measure of output per hour. Improvement may lead to lower mortgage rates. |
| Q4 Employment Cost Index |
Thursday, Dec. 3, |
Up 0.4% |
Very important. A measure of wage inflation. Weakness may lead to lower rates. |
| Employment |
Friday, Dec. 4, |
Jobs -120,000 Unemp @ 10.2% |
Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates. |
| Factory Orders |
Friday, Dec. 4, |
+0.2% |
Important. A measure of manufacturing sector strength. Weakness may lead to lower 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 considers in setting interest rate policy. If the “Beige Book” shows signs of inflationary pressures, the Fed’s ability to keep rates lower may be somewhat restricted. However, if the report shows signs of difficulties, the Fed may keep rates low to stimulate the economy.
The “Beige Book” release on Wednesday should provide market participants with valuable insight into what the Fed will do and how mortgage interest rates will respond in the short-term. Be cautious heading into this and the other important releases this week.
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Market Update 11/23/2009
Market Comment
Mortgage bond prices rose last week pushing mortgage interest rates lower. Mixed data resulted in up and down trading but within a relatively narrow range. Things were going well the first part of the week with rates improving until Wednesday when the consumer price index and the core came in higher than expected. Inflation, real or perceived, erodes the value of fixed income investments causing prices to fall and rates to rise. We saw some of that mid-week. Despite this, interest rates finished the week improved by about 1/8 to 1/4 of a discount point.
The US Treasury will continue the record Treasury auctions with a $44 billion 2-year note auction Monday, $42 billion 5-year note auction Tuesday, and a $45 billion 7-year note auction Wednesday. The bond market will be closed Thursday for Thanksgiving and will have a shortened trading session Friday.
LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| Existing Home Sales |
Monday, Nov. 23, |
Down 0.5% |
Low importance. An indication of mortgage credit demand. A significant decrease may lead to lower rates. |
| Preliminary 3Q GDP |
Tuesday, Nov. 24, |
Up 3.0% |
Very important. The aggregate measure of US economic production. Weakness may lead to lower rates. |
| Consumer Confidence |
Tuesday, Nov. 24, |
47.5 |
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
| Personal Income and Outlays |
Wednesday, Nov. 25, |
Up 0.2%, |
Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates. |
| PCE Core Inflation |
Wednesday, Nov. 25, |
Up 0.1% | Important. A measure of price increases for all domestic personal consumption. Weakness may help rates improve. |
| Durable Goods Orders |
Wednesday, Nov. 25, |
Up 0.5% | Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates. |
| U of Michigan Consumer Sentiment |
Wednesday, Nov. 25, |
66.5 |
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
| New Home Sales |
Wednesday, Nov. 25, |
Up 2.9% | Important. An indication of economic strength and credit demand. Weakness may lead to lower rates. |
Preliminary GDP The Gross Domestic Product (GDP) is one the most important reports during any given quarter. GDP is a measure of US economic output and spending. The report is significant in that it provides investors, analysts, traders, and economists with a comprehensive report of the direction of the economy. In addition, it also influences the decisions of Federal Reserve policy makers, Congressional budget employees, and corporate financial planners. GDP is the sum total of goods and services produced by the United States. The initial report is often based on incomplete data. Therefore, additional revisions are released over the following two months. There are often substantial differences between the initial release and the revisions. The mortgage-backed security market generally responds favorably to weaker GDP growth. The preliminary third quarter gross domestic product data this week has the potential to move mortgage interest rates. Be cautious.To unsubscribe, please hit “reply” and include unsubscribe in the subject line.
Market Update 11/16/2009
Market Comment
Mortgage bond prices rose last week pushing mortgage interest rates lower. The Fed spent another $45 billion buying mortgage bonds between November 5th and the 11th. For all the criticism the Fed receives for the handling of the economy, they do deserve credit for keeping mortgage interest rates low throughout this year. How it all plays out in the long term is uncertain. The record Treasury auctions continued to be absorbed in trading without any major problems. For the week, interest rates improved by about 7/8ths of a discount point.The consumer price index data Wednesday will be the most important release this week. Producer price index data along with retail sales data will set the tone for the start of the week. Inflation indications would likely hurt mortgage interest rates but signs of tame inflation could help rates improve.LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| Retail Sales |
Monday, Nov. 16, |
Up 0.9% |
Important. A measure of consumer demand. A smaller than expected increase may lead to lower rates. |
| Business Inventories |
Monday, Nov. 16, |
Down 0.6% |
Low importance. An indication of stored-up capacity. A significantly large increase may lead to lower rates. |
| Producer Price Index |
Tuesday, Nov. 17, |
Up 0.5%, |
Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates. |
| Industrial Production |
Tuesday, Nov. 17, |
Up 0.3% |
Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates. |
| Capacity Utilization |
Tuesday, Nov. 17, |
70.8% | Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates. |
| Housing Starts |
Wednesday, Nov. 18, |
Up 1.5% | Important. A measure of housing sector strength. Weakness may lead to lower rates. |
| Consumer Price Index |
Wednesday, Nov. 18, |
Up 0.2%, |
Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates. |
| Leading Economic Indicators |
Thursday, Nov. 19, |
Up 0.4% | Important. An indication of future economic activity. A smaller increase may lead to lower rates. |
| Philadelphia Fed Survey |
Thursday, Nov. 19, |
None | Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. |
Tax Credit ExtensionThe housing market received some good news when Congress recently acted on the pleas of housing sector professionals and extended the $8000 first time homebuyer tax credit. In addition, the program was expanded to include move-up buyers with a $6500 tax credit. The program now runs through April of next year. Prior to the extension the program was set to eclipse at the end of November.
Even with the positive measure there is still some criticism the program does nothing to address the foreclosure problems that continue to plague the housing market. Unfortunately the cost to extend the credit is around $1 billion per month. This has politicians from both sides of the isle concerned.
The new and move-up buyer incentives coupled with historically low interest rates make now a great time to purchase a home. Low rates also make it favorable for many current homeowners to refinance.
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Market Update 11/09/2009
Market Comment
Mortgage bond prices were near unchanged for the week amid very choppy trading conditions. Stronger than expected factory orders and ISM Index data were generally not bond friendly and attributed to higher rates in the middle of the week. Fortunately the Fed indicated the continued desire to keep rates low for an extended period. In addition, higher than expected unemployment and more payroll losses than expected helped mortgage bonds rally Friday. For the week, interest rates finished near unchanged.
The record debt auctions Monday, Tuesday, and Thursday will once again take center stage as the Veterans holiday Wednesday splits the trading week in half. Strong foreign demand remains necessary for interest rates to stay relatively low. The trade data Friday will also be important.
LOOKING AHEAD
|
Economic |
Release |
Consensus |
|
| 3-year Treasury Note Auction |
Monday, Nov. 9, |
None |
Important. $40 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| 10-year Treasury Note Auction |
Tuesday, Nov. 10, |
None |
Important. $25 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Veterans Day |
Wednesday, Nov. 11 |
Important. Shortened trading week may lead to mortgage interest rate volatility. | |
| 30-year Treasury Bond Auction |
Thursday, Nov. 12, |
None |
Important. $16 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates. |
| Trade Data |
Friday, Nov. 13, |
$31.9 billion | Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. |
| U of Michigan Consumer Sentiment |
Friday, Nov. 13, |
71.8 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
Trading This WeekMarket conditions that often lead to mortgage interest rate volatility are thin trading and shortened trading weeks. If very few market participants are buying and selling bonds, the potential for short-term volatility is escalated. A large buyer or seller can execute trading orders that, without additional traders to buffer out the extreme buying or selling, can lead to swift market movements. In addition, shortened trading weeks have the potential to compress a week’s worth of trading into fewer days. Bond traders often take defensive positions ahead of weekends and holidays to guard against unforeseen events that could possibly jeopardize their investments. This positioning can be beneficial or detrimental to mortgage interest rates. If investors sell stocks and buy mortgage-backed securities, mortgage interest rates will improve. However, if investors sell mortgage-backed securities and hold cash positions, mortgage interest rates will rise.
Holidays can often result in volatility as trading resumes following the extended close. The Fed continues to state the goal of low interest rates for some time. It is hard to argue they have not been effective with that goal so far this year. That doesn’t mean we haven’t and won’t see any interest rate volatility. Recent history attests to spikes and drops in rates throughout the year even with the Fed pumping $1.25 trillion in mortgage bonds. The big unknown remains when and how the Fed will exit the market without severe disruptions. Fed officials admit the future remains uncertain.
This week could result in market swings that are favorable or negative in nature. Considering the heightened possibility for mortgage interest rate volatility, a cautious approach to interest rate exposure is prudent.
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