MARKET COMMENT Mortgage bond prices ended higher last week, which pushed mortgage interest rates lower. The financial markets remained extremely volatile. Most of the rate improvements came early in the week following Japan’s intervention to weaken the yen and Greek Prime Minister Papandreou’s indication that budget cuts would be put to a public vote. Unfortunately some of those rate improvements were erased when Papandreou retreated on the vote and the European Central Bank made a surprise rate cut. The employment report was mixed with the headline figure of 9% coming in lower than estimates while non-farm payrolls were weaker than expected. Despite the wild swings, mortgage interest rates fell by almost a full discount point for the week.
• Consumer Credit; Nov. 7; Consensus Estimate $9.56b; Low importance. A significantly large increase may lead to lower mortgage interest rates.
• 3-year Treasury Note Auction; Nov. 8; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
• 10-year Treasury Note Auction; Nov. 9; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
• Weekly Jobless Claims; Nov. 10; Consensus Estimate 395k; Important. An indication of employment. Higher claims may result in lower rates.
• Trade Data; Nov. 10; Consensus Estimate $45b deficit; Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
• 30-year Treasury Bond Auction; Nov. 10; Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates.
• U of Michigan Consumer Sentiment; Nov. 11; Consensus Estimate 60.5; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
TRADE DATA In the distant past the US economy tended to be viewed as relatively unaffected by economic activity in other countries. However, increased trades with other countries and an increased reliance on foreign purchases of US debt have generated a market awareness of trade-related issues. The exchange rate of the dollar and foreign trade flows are interrelated. One must buy dollars to purchase US exports, and sell dollars to buy imports. Likewise, foreign investment in US debt requires the purchase of US dollars, and is thus affected by exchange rates.
Each month the Commerce Department gathers an enormous amount of detailed data on exports and imports. The data is broken between goods and services trade. The overall trade balance is the dollar difference between US exports and imports on a seasonally adjusted basis. The report also highlights trade flows between the US and various partners. Since the mid-1970’s, US imports of consumer and capital goods have exceeded exports, so a merchandise trade deficit has existed. The US has always maintained a service trade surplus, and because this surplus is not enough to offset the merchandise trade deficit, a net export deficit has resulted.
Due to the overwhelming amount of data considered, trade is difficult to forecast, and can present surprises. For a variety of reasons, the financial markets will often be unaffected by surprises in trade data. However, the data still has the ability to cause mortgage interest rate volatility.
Source: F&M Mortgage, Todd Kabel; Rate Link, MMIS; Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee