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.
- 3-Year Treasury Note Auction; Sept 7; Important. $33 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
- 10-year Treasury Note Auction; Sept. 8; Important. $21 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
- Fed “Beige Book”; Sept. 8; Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
- Consumer Credit; Sept. 8; Consensus Estimate Down $1.1 billion; Low importance. A significantly larger than expected increase may lead to lower mortgage interest rates.
- Trade Data; Sept. 9; Consensus Estimate $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; Sept. 9; Consensus Estimate 485k; Important. An indication of employment. An increase in jobless claims may bring lower rates.
- 30-year Treasury Bond Auction; Sept. 9; 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.
Source: Courtesy of Todd Kabel, US Bank, Nashville, Tennessee