MARKET COMMENT Mortgage bond prices rose last week helping mortgage interest rates fall. Turmoil in many of the oil producing countries sent oil prices skyrocketing higher. Normally rising energy prices cause inflation fears but we are not in normal times. Rising energy prices ignited concerns about the global economic recovery and sent a wave of buying into US debt instruments. Data was mixed. Weekly jobless claims and new home sales were lower than expected while consumer confidence and consumer sentiment data were higher than expected. The Treasury auctions generally went well and did not move the market much. Mortgage bonds ended the week positive by a favorable 7/8 of a discount point.
PCE core inflation data leads the wave of significant data this week and the employment report will be the headline release Friday morning.
- Personal Income and Outlays; Feb. 28; 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; Feb. 28; Consensus Estimate Up 0.1%; Important. A measure of price increases for all domestic personal consumption. Weakness may help rates improve.
- ISM Index; March 1; Consensus Estimate 60; Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
- ADP Employment; March 2; Consensus Estimate 155k; Important. An indication of employment. Weakness may bring lower rates.
- Fed “Beige Book”; March 2; Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
- Weekly Jobless Claims; March 3; Consensus Estimate 390k; Important. An indication of employment. Higher claims may result in lower rates.
- Revised Q4 Productivity; March 3; Consensus Estimate Up 2.3%; Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
- Employment Friday; March 4; Consensus Estimate Unempl. 9.1%, Payrolls 190k; Very important. An increase in unemployment or weaker payrolls may bring lower rates.
- Factory Orders; March 4; Consensus Estimate Up 2.1%; 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. Be cautious heading into this release.