Market Comment for Week of November 14, 2011…

MARKET COMMENT Mortgage bond prices ended lower last week, which pushed mortgage interest rates slightly higher. The early portion of the week was relatively tame compared to recent trading conditions. Most of the weakness came Thursday following stronger than expected weekly employment figures. Weekly jobless claims came in at 390k, better than the expected 400k mark and generally not bond friendly. Continuing claims came in at 3,615k, which also beat estimates. The reaction was negative and sent rates slightly higher ahead of the extended holiday weekend. Positive stocks also pressured rates at times throughout the week. Mortgage interest rates rose by approximately 1/4 of a discount point for the week.

LOOKING AHEAD

• Producer Price Index; Nov. 15; Consensus Estimate Up 0.4%, Core up 0.2%; Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates.
• Retail Sales; Nov. 15; Consensus Estimate Up 1.4%; Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
• Business Inventories; Nov. 15; Consensus Estimate Up 0.2%; Low importance. An indication of stored-up capacity. A significantly larger increase may lead to lower rates.
• Consumer Price Index; Nov. 16; Consensus Estimate Up 0.3%, Core up 0.1%; Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates.
• Industrial Production; Nov. 16; Consensus Estimate Up 0.2%; Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates.
• Capacity Utilization; Nov. 16; Consensus Estimate 77.2%; Important. A figure above 85% is viewed as inflationary. Weaker figure may lead to lower rates.
• Weekly Jobless Claims; Nov. 17; Consensus Estimate 387k; Important. An indication of employment. Higher claims may result in lower rates.
• Housing Starts; Nov. 17; Consensus Estimate 610k; Important. A measure of housing sector strength. Weakness may lead to lower rates.
• Philadelphia Fed Survey; Nov. 17; Consensus Estimate 6.8; Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.
• Leading Economic Indicators; Nov. 18; Consensus Estimate Up 0.2%; Important. An indication of future economic activity. A smaller increase may lead to lower rates.

BUSINESS INVENTORIES The report on business inventories basically gives a broader look at the durable goods, factory orders, and retail sales reports. Not only is this report an important part of the investment component of the GDP, but it also provides additional evidence about the economy in the upcoming months. Changes in business inventories slow as the economy approaches a peak, and rise as the economy approaches the trough of a recession. Therefore the change in business inventories is a leading indicator of GDP. The data for this report, which are published by the Department of Commerce’s Census Bureau, comes from a monthly survey of inventories, orders, and manufacturers’ shipments, in addition to the merchant wholesalers and retail trade surveys.

In this environment every piece of data has the potential to cause some volatility.

Source: F&M Mortgage, Todd Kabel; MMIS, 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

Market Comment for Week of July 11, 2011…

MARKET COMMENT   Mortgage bond prices rebounded last week, which helped mortgage interest rates improve. Weaker than expected data resulted in positive rate movements. Factory orders and the employment report both failed to meet expectations. Factory orders rose 0.8% in contrast to the expected  1.0% increase. Unemployment came in at 9.2%, higher than the expected 9.1% mark. Payrolls increased 18k, considerably weaker than the expected 110k increase. Mortgage bonds ended the week better by about 5/8 of a discount point.

The Treasury will auction 3Y notes on Tuesday, 10Y notes on Wednesday, and 30Y bonds on Thursday. If foreign demand falters rates may come under pressure.

LOOKING AHEAD

  •  Trade Data; July 12; Consensus Estimate $43b deficit; Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
  • Fed Minutes; July 13; Important. Details of the last Fed meeting will be thoroughly analyzed. Weekly Jobless Claims; July 14; Consensus Estimate 420k; Important. An indication of employment. Higher claims may result in lower rates.
  • Retail Sales; July 14; Consensus Estimate Down 0.1%; Important. A measure of consumer demand. Weakness may lead to lower mortgage rates.
  • Producer Price Index; July 14; Consensus Estimate Up 0.2%, Core up 0.2%; Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates.
  • Consumer Price Index; July 15; Consensus Estimate Up 0.2%, Core up 0.3%; Important. A measure of inflation at the consumer level. Lower than expected increases may lead to lower rates.
  • Industrial Production; July 15; Consensus Estimate Up 0.2%; Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates.

Capacity Utilization; July 15; Consensus Estimate 76.8%; Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.

JOBS AND THE ECONOMY   Our economy in the US is driven by consumer spending, which accounts for almost 70% of Gross Domestic Product (GDP). Three driving forces, high unemployment, high commodity costs, and a depressed housing market are currently hampering consumer spending and thus keeping the recession intact.

It is simple; a person without a job can’t spend money because they don’t have any. High food and energy costs, items that must be purchased to keep a household running, saps money that could be used for other “luxury” items like TV’s and cars. Lastly, many relied on home equity to enhance lifestyles, pay for college, or make major improvements to the house.

The only way for the USto reduce our budget deficits and grow GDP is to get people back to work. We have a long way to go as the employment report showed last week.

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

Market Comment for Week of April 11, 2011…

MARKET COMMENT   Mortgage bond prices fell last week pushing mortgage interest rates higher. Stocks continued to show strength throughout the week. The DOW was generally positive which didn’t help mortgage bonds. There were very few economic releases. The Fed minutes from the last meeting were released and inflation was the focus. The Fed indicated it is important to monitor inflation expectations but noted that a boost to inflation from rising energy costs will likely be transitory. Unfortunately the talk of inflation, real or perceived, generally caused fixed income securities such as mortgage bonds to fall and rates to rise. Mortgage bonds ended the week worse by about 3/8 of a discount point. 

The US Treasury will auction 3-year notes on Tuesday, 10-year notes on Wednesday, and 30-year bonds on Thursday. Strong foreign demand is needed in order for rates to push lower. 

LOOKING AHEAD 

  • Trade Data; April 12; Consensus Estimate $45.5b deficit; Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
  • Retail Sales; April 13; Consensus Estimate Up 0.7%; Important. A measure of consumer demand. Weakness may lead to lower mortgage rates.
  • Fed “Beige Book”; April 13; Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
  • Weekly Jobless Claims; April 14; Consensus Estimate 380k; Important. An indication of employment. Higher claims may result in lower rates.
  • Producer Price Index; April 14; Consensus Estimate Up 1.2%, Core up 0.2%; Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates.
  • Consumer Price Index; April 15; Consensus Estimate Up 0.7%, Core up 0.2%; Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates.
  • Industrial Production; April 15; Consensus Estimate Down 0.2%; Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
  • Capacity Utilization; April 15; Consensus Estimate 76%; Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.
  • U of Michigan Consumer Sentiment; April 15; Consensus Estimate 67.3;  Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

RETAIL SALES   Retail sales data is the first indication of weakness or strength in consumer spending released each month. The Bureau of the Census of the US Department of Commerce provides information on how much the consumer spends on the purchase of goods. This data provides the consumption part of the gross domestic product. Retail sales data represents merchandise sold for cash or credit by retailers. Durable goods, such as autos, make up 35% of the figure. The balance consists of non-durables such as gasoline, restaurants, and general merchandise. 

There are several drawbacks to the report. The data covers purchases of goods only, not services. It is also not adjusted for inflation and is extremely volatile. Economists are concerned that the current economic uncertainty will continue to curtail consumer-spending habits. Consumers have generally been given credit for sustaining the economy even amid the economic turmoil.  

Source: Todd Kabel, F&M Mortgage; Blog distribution provided by Kenneth Bargers and Bargers Solutions residential real estate services located in Nashville, Tennessee

Market Comment for Week of March 14, 2011…

MARKET COMMENT   Mortgage bond prices rose last week helping mortgage interest rates improve. The US Treasury auctions generally showed decent foreign demand for US debt instruments. Oil prices fluctuated which continued to cause market volatility. Weekly jobless claims came in higher than expected which sent mortgage interest rates lower as stocks struggled. Retail sales came in as expected while the inflation component of the Michigan consumer sentiment survey shocked to the upside. Despite the mixed data mortgage bonds ended the week better by about 1/2 of a discount point. 

The Fed meeting Tuesday will take center stage this week and set the tone for the days ahead. The inflation data that follows has the real potential to cause mortgage interest rate volatility. 

LOOKING AHEAD 

  • Fed Meeting Adjourns; March 15; Consensus Estimate No rate change; Important. Few expect a rate change, but some volatility may surround the adjournment of the meeting.
  • Housing Starts; March 16; Consensus Estimate 550k; Important. A measure of housing sector strength. Weakness may lead to lower rates.
  • Producer Price Index; March 16; Consensus Estimate Up 0.6%, Core up 0.2%; Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates.
  • Weekly Jobless Claims; March 17; Consensus Estimate 380k; Important. An indication of employment. Higher claims may result in lower rates.
  • Consumer Price Index; March 17; Consensus Estimate Up 0.4%, Core up 0.1%; Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates.
  • Industrial Production; March 17; Consensus Estimate Up 0.6%; Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates.
  • Capacity Utilization; March 17; Consensus Estimate 76%; Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.
  • Leading Economic Indicators; March 17; Consensus Estimate Up 0.4%; Important. An indication of future economic activity. A smaller increase may lead to lower rates.
  • Philadelphia Fed Survey; March 17; Consensus Estimate 35; Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.

PRODUCER PRICE INDEX   The producer price index is a measure of prices at the producer level and is important because it is the first inflation report to be released each month. Investors are typically able to gain an initial indication of inflationary pressures from the release. If producer prices are increasing, there is a tendency for producers to pass the increases on to consumers in the form of higher priced goods. It is important to note that the PPI is only a measure of goods, while the consumer price index is a measure of goods and services. It is possible for the price of goods to remain stable, while the price of services increases. In this scenario PPI would do little to warn of a change in inflationary pressures, while the CPI report would provide an indication of the inflationary effects of the service component. This distinction between the two reports shows why most analysts view the CPI as a more accurate indicator of inflation. Nevertheless, market participants still gain valuable insight into potential volatility in the financial markets from the PPI release. Be cautious heading into the inflation data this week.

Source: Todd Kabel, F&M Mortgage; Blog distribution provided by Kenneth Bargers and Bargers Solutions residential real estate services located in Nashville, Tennessee

Market Comment for Week of February 14, 2011…

MARKET COMMENT   Mortgage bond prices fell last week pushing mortgage interest rates higher. The Treasury auctions were mixed. The 3YR auction showed weak foreign demand and resulted in a sell off following the results. The 10YR auction was decent and helped keep things in check while the 30YR auction didn’t move the market much. Weekly jobless claims came in at 383k, lower than the expected 410k. That data pressured rates higher. There were some positive movements Friday morning following weaker than expected consumer sentiment data but not enough to recover all the earlier losses. Mortgage rates ended the week higher by a disappointing 3/8 of a discount point. 

The Treasury will have a 30Y TIPS auction Thursday afternoon. If demand falters rates could be adversely affected. 

LOOKING AHEAD 

  • Retail Sales; Feb. 15; Consensus Estimate Up 0.5%; Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
  • Housing Starts; Feb. 16; Consensus Estimate 495k; Important. A measure of housing sector strength. Weakness may lead to lower rates.
  • Producer Price Index; Feb. 16; Consensus Estimate Up 0.8%, Core up 0.1%; Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates.
  • Industrial Production Feb. 16; Consensus Estimate Up 0.7%; Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates.
  • Capacity Utilization; Feb. 16; Consensus Estimate 75.5%; Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.
  • Consumer Price Index; Feb. 17; Consensus Estimate Up 0.4%, Core up 0.1%; Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates.
  • Weekly Jobless Claims; Feb. 17; Consensus Estimate 390k; Important. An indication of employment. Higher claims may result in lower rates.
  • Leading Economic Indicators; Feb. 17; Consensus Estimate Up 0.8%; Important. An indication of future economic activity. A smaller increase may lead to lower rates.
  • Philadelphia Fed Survey; Feb. 17; Consensus Estimate 19; Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.

WORLD RATES   China’s central bank raised rates for the third time in four months to help ward off inflation as food and energy costs continue to rise. A drought in China is threatening the wheat crop, which is adding further pressure to commodity prices. Other emerging economies are also fearful of a spike in inflation. Market analysts are expecting Brazil’s central bank to raise rates soon. The overnight lending rate there is currently 11.25%. In contrast, the Federal Reserve continues to add stimulus to the US economy keeping rates near zero and buying bonds. 

The futures market is now pricing in a near 100% chance the Fed will move rates higher by December. Last week they put the odds of a rate increase at 25%. That is a big change in sentiment in such a short period of time. While interest rates have seen significant increases over the past few months they still remain historically very low. There are no guarantees rates will remain low as recent history has shown. 

Source: Todd Kabel, F&M Mortgage; blog distribution provided by Kenneth Bargers and Bargers Solutions residential real estate services located in Nashville, Tennessee

Market Comment for Week of January 10, 2011…

MARKET COMMENT   Mortgage bond prices started the week in negative territory. The ADP employment report was significantly stronger than expected sending rates higher. There were few data releases. Stocks started the New Year generally stronger, which added to the losses in bonds. The employment report was mixed and the initial reaction Friday morning was muted. 

Mortgage bonds ended the week negative by about 1/8 of a discount point. 

The US Treasury will auction $32b in 3-year notes on Tuesday, $21b in 10-year notes on Wednesday, and $13b in 30-year bonds on Thursday. These auctions along with the inflation data this week are likely to set the tone for trading. 

LOOKING AHEAD 

  • Fed “Beige Book”; Jan. 12; None;  Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
  • Weekly Jobless Claims; Jan. 13; Consensus Estimate 420k; Important. An indication of employment. Higher claims may result in lower rates.
  • Producer Price Index; Jan. 13; Consensus Estimate Up 0.7%, Core up 0.1%; Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates.
  • Trade Data; Jan. 13; Consensus Estimate $40b deficit; Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
  • Consumer Price Index; Jan. 14; Consensus Estimate Up 0.4%, Core up 0.1%; Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates.
  • Retail Sales; Jan. 14; Consensus Estimate Up 0.9%; Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
  • Industrial Production; Jan. 14; Consensus Estimate Up 0.4%; Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates.
  • Capacity Utilization; Jan. 14; Consensus Estimate 75.3%; Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower mortgage interest rates.
  • U of Michigan Consumer Sentiment; Jan. 14; Consensus Estimate 75; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

EMPLOYMENT RESULTS   The December employment report came in mixed with the headline rate surprising lower and the jobs figure also lower. Fortunately we had some gains heading into the release and rates were able to improve following the report. Unemployment came in at 9.4%, considerably better than the 9.7% rate and not bond friendly. However, the payrolls component showed jobs increased 103,000 compared to the 150,000 increase expected by analysts. The mortgage bond market had a positive reaction to the report. 

The Bureau of Labor Statistics (BLS) of the U.S. Department of Labor compiles data from two different surveys that they conduct, the household survey and the establishment survey, in order to complete the employment report. This explains why sometimes there is an unexpected divergence between the unemployment rate and payrolls figures each month. The payrolls figure usually receives the greater weight from analysts but the headline figure covers the news headlines. 

Source: Todd Kabel, US Bank; blog distribution provided by Kenneth Bargers and Bargers Solutions residential real estate services located in Nashville, Tennessee

Market Comment for Week of December 20, 2010…

MARKET COMMENT   Mortgage bond prices got crushed the beginning of last week pushing rates significantly higher. Increased inflation fears tied to the Fed’s quantitative easing (QE2) and stronger than expected data led to an increase in mortgage interest rates. Retail sales and producer price data were higher than expected. Fortunately the bond market became so oversold that buyers emerged and mortgage bonds rebounded Thursday afternoon and Friday. Even with the bounce back we were still negative on the week by about 5/8 of a discount point. 

Look for the possibility of volatility amid likely thin trading conditions and a shortened trading week. The bond market will close early Thursday afternoon and will be closed the entire day Friday in observance of the Christmas Holiday. 

LOOKING AHEAD 

  • Q3 GDP third estimate; Dec. 22; Consensus Estimate Up 2.6%; Important. The aggregate measure of US economic production. Weakness may lead to lower rates.
  • Existing Home Sales; Dec. 22; Consensus Estimate 4.65m; Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates.
  • Personal Income and Outlays; Dec. 23; Consensus Estimate Up 0.2%, Up 0.4%; Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
  • PCE Core Inflation; Dec. 23; Consensus Estimate Up 0.1%; Important. A measure of price increases for all domestic personal consumption. Weaker figure may help rates improve.
  • Durable Goods Orders; Dec. 23; Consensus Estimate Down 0.8%; Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates.
  • Weekly Jobless Claims; Dec. 23; Consensus Estimate 455k; Important. An indication of employment. Higher claims may result in lower rates
  • U of Michigan Consumer Sentiment; Dec. 23; Consensus Estimate 73.7; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
  • New Home Sales; Dec. 23; Consensus Estimate 300k; Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.

GAS PRICES   With gasoline prices hovering around the $3/gallon mark and oil prices in the upper $80/barrel range the fear of continued energy price increases is ever present. Oil prices remain high amid a slight rebound in the US economy and increased global demand. Many foreign nations blame the rising prices on a weaker US dollar. Higher energy costs are generally viewed as evidence of inflation. Inflation erodes the value of fixed income investments such as mortgage bonds causing prices to fall and rates to rise.

The markets seem convinced that the demand for oil will continue to grow as economies recover across the globe. However, these predictions are not a given. OPEC increased output in the third quarter but prices continued to rise. The world economies are still struggling and a spike in energy prices could lead to severe economic turmoil. However, predictions are tenuous at best, the future is uncertain, and market sentiment changes daily. 

The important thing to remember is that rates remain historically favorable. Now is a great time to avoid the uncertainty surrounding continued market volatility and the possibility of higher mortgage interest rates. 

Source: Todd Kabel, US Bank; blog distribution provided by Kenneth Bargers and Bargers Solutions residential real estate services located in Nashville, Tennessee.