MARKET COMMENT Mortgage bond prices fell last week, which pushed mortgage interest rates higher. Rates started off on a bad note Monday as stocks surged higher. This negative movement continued throughout midweek as durable goods orders rose 4%, considerably stronger than the expected 1.9% increase. Stocks took a roller coaster ride and fell a bit Thursday morning, which helped support mortgage rates. Rates rebounded slightly Friday morning as Q2 GDP came in lower than expected. Market participants were looking for indications from Fed Chairman Bernanke late Friday morning that another round of stimulus was on the way but to no avail. Unfortunately mortgage bonds ended the week worse by about 1/2 of a discount point.
The employment report Friday will be the most important event this week.
• Personal Income and Outlays; Aug. 29; Consensus Estimate Up 0.1%, Unchanged; Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
• PCE Core Inflation; Aug. 29; Consensus Estimate Up 0.1%; Important. A measure of price increases for all domestic personal consumption. Weaker figure may help rates improve.
• Consumer Confidence; Aug. 30; Consensus Estimate 59; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
• ADP Employment; Aug. 31; Consensus Estimate 85k; Important. An indication of employment. Weakness may bring lower rates.
• Factory Orders; Aug. 31; Consensus Estimate Down 0.5%; Important. A measure of manufacturing sector strength. A larger decrease may lead to lower rates.
• Weekly Jobless Claims; Sept. 1; Consensus Estimate 405k; Important. An indication of employment. Higher claims may result in lower rates.
• Revised Q2 Productivity; Sept. 1; Consensus Estimate Down 0.1%; Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
• ISM Index; Sept. 1; Consensus Estimate 50.5; Important. A measure of manufacturer sentiment. A larger decline may lead to lower mortgage rates.
• Employment Friday; Sept. 2; Consensus Estimate 9.1%, Payrolls +80k; Very important. An increase in unemployment or weakness in payrolls may bring lower rates.
WEATHER The mortgage interest rate markets are subject to an enormous number of factors. Most analysts agree that weather can have an effect on market activity. Although the effects are seldom long lasting, they can be quite significant.
The United States is the world’s largest exporter of corn. Relatively rainy weather across the Midwest portions of the United States can delay the planting of corn. This often causes corn prices to escalate. Sometimes corn farmers plant more acres of corn than analysts expect. Larger corn crops can cause prices to fall. Lower corn prices can carry over to lower food prices for some items. The weather also has the potential to directly alter fuel prices. As we enter the hurricane season, many oil and gas fields in the Gulf along with refineries along coasts are susceptible to damage. If this were to occur, oil prices would almost surely rise sharply. Rising oil prices would do little to help keep inflationary fears in check. The result would most likely be higher rates.