MARKET COMMENT Mortgage bond prices fell last week pushing mortgage interest rates higher. Stocks generally showed strength throughout the week, which didn’t help mortgage bonds. Reports of Japan stabilizing their nuclear facilities resulted in a reversal of the earlier flight to quality buying of US debt. New home sales data came in weaker than expected which helped rates bounce back a bit mid-week. Unfortunately Fed Official Plosser’s comments Friday afternoon sent bonds falling and rates higher. Plosser indicated monetary policy will soon need to reverse course and that the preferred exit strategy would raise rates and reduce the Fed’s balance sheet concurrently. Mortgage bonds ended the week worse by about 3/4 of a discount point.
The Treasury will auction 2-year notes on Monday, 5-year notes on Tuesday, and 7-year notes on Wednesday.
- Personal Income and Outlays; March 28; Consensus Estimate Up 0.4%, Up 0.6% Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
- PCE Core Inflation; March 28; Consensus Estimate Up 0.2%; Important. A measure of price increases for all domestic personal consumption. Weaker figure may help rates improve.
- Consumer Confidence; March 29; Consensus Estimate 70; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
- ADP Employment; March 30; Consensus Estimate 180k; Important. An indication of employment. Weakness may bring lower rates.
- Weekly Jobless Claims; March 31; Consensus Estimate 365k; Important. An indication of employment. Higher claims may result in lower rates.
- Factory Orders; March 31, Consensus Estimate Up 2.4%; Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
- Employment; April 1; Consensus Estimate 8.9%, 160k; Very important. An increase in unemployment or weakness in payrolls may bring lower rates.
- ISM Index; April 1; Consensus Estimate 61; Important. A measure of manufacturer sentiment. A large decline may lead to lower mortgage rates.
INCOME & OUTLAYS The personal income and outlays release is a monthly report issued by the Bureau of Economic Analysis (BEA). The data is important because it is thought to provide a solid indication of future consumer demand. The personal income component is primarily a measure of wages and salaries. The outlays component is primarily a measure of spending on goods and services. Together the figures provide analysts valuable insight into consumer economic standing and consumption.
The prior release showed an increase in wages and salaries. Some of that was attributed to a cut in the payroll tax. If that trend reverses future weakness could adversely affect consumer spending and the entire US economy. Decreased or stagnant wages coupled with tighter borrowing restrictions make it difficult for consumers to spend money. It is important to note that no single economic indicator can consistently predict the future of the economy. However, the personal income and outlays report is a closely watched release. The consumer remains a vital component of the US economy.
The release this week has the potential to move the financial markets. Now is a good time to take advantage of mortgage interest rates at their current levels to avoid market volatility.