Market Comment for Week of October 31, 2011…

MARKET COMMENT Mortgage bond prices ended last week lower, which pushed mortgage interest rates considerably higher. Stock strength Thursday along with advancements in the Eurozone battle to shore the debt crisis resulted in a terrible week for mortgage interest rates. Stocks remained volatile with 100 plus point swings from day to day but a strong 340-point surge in the DOW Thursday resulted in rate increases of 3/4 of a discount point on that day alone. Mortgage interest rates rose by almost a full discount point for the week.

The Fed results Wednesday afternoon will be the most important event this week. The employment report Friday will be the most significant data release for the month.

LOOKING AHEAD

• ISM Index; Nov. 1; Consensus Estimate 51.4; Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
• Construction Spending; Nov. 1; Consensus Estimate Up 0.8%; Low importance. An indication of economic strength. Significant weakness may lead to lower rates.
• ADP Employment; Nov. 2; Consensus Estimate 85k; Important. An indication of employment. Weakness may bring lower rates.
• Fed Meeting Adjourns; Nov. 2; Important. Few expect the Fed to change rates, but some volatility may surround the adjournment of this meeting.
• Weekly Jobless Claims; Nov. 3; Consensus Estimate 403k; Important. An indication of employment. Higher claims may result in lower rates.
• Preliminary Q3 Productivity; Nov. 3; Consensus Estimate Up 0.1%; Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
• Factory Orders; Nov. 3; Consensus Estimate Up 0.1%; Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
• Employment Friday; Nov. 4; Consensus Estimate 9.1%, Payrolls +95k; Very important. An increase in unemployment or weakness in payrolls may bring lower rates.

STOCKS AND BONDS REMAIN VOLATILE Last week, mortgage interest rates rose sharply following the relatively poor bid 7-year Treasury note auction. As the US economy moves along, the demand for the lower yielding government-backed debt securities has whipsawed considerably. One day we see a flight to quality influx of investor funds, which drive prices up and rates down. The next day the inverse occurs.

The US stock market was on a roar the latter portion of the week at the expense of demand for mortgage-backed securities. As the stock market gained strength, investors sought higher returns by moving their money out of the bond market and into the higher yielding stock market. The whipsaw trading environment is likely to continue.

A cautious approach is necessary to protect against extreme short-term market volatility resulting in increased interest rates considering the improbability of accurately determining how the market will react on a short-term day-to-day trading basis. Taking advantage of the historically favorable interest rates at their current levels makes sense in this environment. We have seen in the last few weeks alone that lower rates are not a given.

Source: F&M Mortgage, Todd Kabel; Rate Link; Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee

Author: Kenneth Bargers

REALTOR®, Tennis Player, Titans, Vols & Preds Fan, Nashvillian... let's connect on Instagram, LinkedIn, Pinterest and Twitter. -- contact Kenneth at kb@bargers-solutions.com

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