MARKET COMMENT Mortgage bond prices rose last week pushing mortgage interest rates lower. There were several Treasury auctions and most resulted in decent foreign demand. Stock strength the middle of the week along with higher than expected new home sales put some upward pressure on rates. Volatile oil prices also factored into trading. Saudi remarks indicated they might increase production. This helped stem some of the oil price spikes in the middle of the week but world benchmark prices remained near the $100/barrel mark and US benchmark prices were near $90/barrel as unrest in Egypt continued. Stock weakness and weaker than expected GDP figures led to rate improvements Friday afternoon. Mortgage bonds ended the week positive by about 1/8 to 1/4 of a discount point despite the continued market swings.
- Personal Income and Outlays; Jan. 31; Consensus Estimate Up 0.3%, Up 0.4%; Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
- PCE Core Inflation; Jan. 31; Consensus Estimate Up 0.1%; Important. A measure of price increases for all domestic personal consumption. Weakness may help rates improve.
- Construction Spending; Feb. 1; Consensus Estimate Up 0.3%; Low importance. An indication of economic strength. Significant weakness may lead to lower rates.
- ISM Index; Feb. 1; Consensus Estimate 56.5; Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
- ADP Employment; Feb. 2; Consensus Estimate 240k; Important. An indication of employment. Weakness may bring lower rates.
- Revised Q4 Productivity; Feb. 3; Consensus Estimate Up 2.4%; Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
- Weekly Jobless Claims; Feb. 3; Consensus Estimate 444k; Important. An indication of employment. Higher claims may result in lower rates.
- Factory Orders; Feb. 3; Consensus Estimate Up 0.5%; Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
- Employment; Feb. 4; Consensus Estimate 9.5%, Payrolls up 85k; Very important. An increase in unemployment or weakness in payrolls may bring lower rates.
ISM The Institute for Supply Management (ISM), formerly the National Association of Purchasing Management (NAPM), releases the “Report on Business” on the first working day of each month. Part of this report is the “diffusion index,” which tracks the economy’s ups and downs fairly well.
In conducting this survey, the ISM questions purchasing executives from over 250 industrial companies compiling data on production, orders, commodity prices, inventories, vendor performance, and employment. Each of the respondents is asked to rank the categories as “up” or “down.” Various weights are applied to the individual components to form the composite index.
A composite index reading of 50 can be thought of as a “swing point.” A reading above 50 implies an increase in economic activity, while a reading below 50 indicates a decline. The ISM report is difficult for economists to forecast because there is little data upon which to base an educated guess. The report has a large “surprise factor” and can cause market swings.