Market Comment
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 Indicator |
Release Date and Time |
Consensus Estimate |
Analysis |
| Personal Income and Outlays | Monday, Aug. 30, 8:30 am, et |
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, 8:30 am, et |
Up 0.1% | Important. A measure of price increases for all personal consumption. Weaker figure may help rates improve. |
| Consumer Confidence | Monday, Aug. 30, 10:00 am, et |
51.3 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
| ADP Employment | Tuesday, Aug. 31, 8:30 am, et |
-20k | Important. An indication of employment. A large decrease in payrolls may bring lower rates. |
| ISM Index | Tuesday, Aug. 31, 10:00 am, et |
53.3 | Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates. |
| Construction Spending | Tuesday, Aug. 31, 10:00 am, et |
Down 0.4% | Low importance. An indication of economic strength. A significant decrease may lead to lower rates. |
| Revised Q2 Productivity | Wednesday, Sept. 1, 8:30 am, et |
Down 1.5% | Important. A measure of output per hour. Improvement may lead to lower mortgage rates. |
| Factory Orders | Wednesday, Sept. 1, 10:00 am, et |
Up 0.5% | Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
| Employment | Friday, Sept. 3, 8:30 am, et |
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.
RATE LINK is provided by Market Information for Mortgage Professionals. 1-800-938-5193. Copyright 2010. All Rights Reserved. Mortgage Market Information Services, Inc. The information contained herein is believed to be accurate, however no representation or warranties are written or implied.
Market update
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 markets.
LOOKING AHEAD
| Economic Indicator |
Release Date and Time |
Consensus Estimate |
Analysis |
| Preliminary Q2 Productivity | Tuesday, Aug. 10, 8:30 am, et |
2.8% | Important. A measure of output per hour. Improvement may lead to lower mortgage rates. |
| 3-year Treasury Note Auction | Tuesday, Aug. 10, 1:15 pm, et |
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, 8:30 am, et |
-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, 1:15 pm, et |
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, 1:15 pm, et |
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, 8:30 am, et |
Down 0.2% | Important. A measure of consumer demand. Weakness may lead to lower mortgage rates. |
| U of Michigan Consumer Sentiment | Friday, Aug. 13, 10:00 am, et |
67.2 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
| Business Inventories | Friday, Aug. 13, 10:00 am, et |
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.
Chico’s Market Update
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 Indicator |
Release Date and Time |
Consensus Estimate |
Analysis |
| Construction Spending | Monday, Aug. 2, 10:00 am, et |
Down 1.0% | Low importance. An indication of economic strength. A significant decrease may lead to lower rates. |
| ISM Index | Monday, Aug. 2, 10:00 am, et |
53.5 | Important. A measure of manufacturer sentiment. A large decline may lead to lower mortgage rates. |
| Personal Income and Outlays | Tuesday, Aug. 3, 8:30 am, et |
Income up 0.2%, Outlays up 0.1% |
Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates. |
| PCE Core | Tuesday, Aug. 3, 8:30 am, et |
Up 0.1% | Important. An indication of inflation. A lower figure may lead to lower rates. |
| Factory Orders | Tuesday, Aug. 3, 10:00 am, et |
Up 0.8% | Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
| ADP Employment | Wednesday, Aug. 4, 8:30 am, et |
Up 30k | Important. An indication of employment. Weakness in payrolls may bring lower rates. |
| Employment | Friday, Aug. 6, 8:30 am, et |
Unemp. @ 9.6%, Payrolls -116k |
Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates. |
| Consumer Credit | Friday, Aug. 6, 3:00 pm, et |
Down $3b | Low importance. A significantly large increase may lead to lower mortgage interest rates. |
CORE PCE
The 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.
Market Update
MARKET COMMENT
Mortgage bond prices rose 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 Indicator |
Release Date and Time |
Consensus Estimate |
Analysis |
| New Home Sales | Monday, July 26, 10:00 am, et |
Up 12.6% | Important. An indication of economic strength and credit demand. Weakness may lead to lower rates. |
| Consumer Confidence | Tuesday, July 27, 10:00 am, et |
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, 1:15 pm, et |
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, 8:30 am, et |
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, 8:30 am, et |
Up 0.5% | Very important. A measure of wage inflation. Weakness may lead to lower rates. |
| U of Michigan Consumer Sentiment | Friday, July 30, 10:00 am, et |
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.
RATE LINK is provided by Market Information for Mortgage Professionals. 1-800-938-5193. Copyright 2010. All Rights Reserved. Mortgage Market Information Services, Inc. The information contained herein is believed to be accurate, however no representation or warranties are written or implied.
Chico Market Update
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 Indicator |
Release Date and Time |
Consensus Estimate |
Analysis |
| Trade Data | Tuesday, July 13, 8:30 am, et |
-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, 8:30 am, et |
Down 0.3% | Important. A measure of consumer demand. Weakness may lead to lower mortgage rates. |
| Business Inventories | Wednesday, July 14, 10:00 am, et |
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, 2:00 pm, et |
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, 9:15 am, et |
Up 0.2% | Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
| Capacity Utilization | Thursday, July 15, 9:15 am, et |
74.2 | Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates. |
| Philadelphia Fed Survey | Thursday, July 15, 10:00 am, et |
8.6 | Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. |
| Consumer Price Index | Friday, July 16, 8:30 am, et |
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.
RATE LINK is provided by Market Information for Mortgage Professionals. 1-800-938-5193. Copyright 2010. All Rights Reserved. Mortgage Market Information Services, Inc. The information contained herein is believed to be accurate, however no representation or warranties are written or implied.