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 June 20, 2011…

MARKET COMMENT  Mortgage bond prices fell last week pushing mortgage interest rates slightly higher. There were large swings throughout the week. Rates were pressured higher Tuesday following stronger than expected producer price index data. Retail sales showed a decline but not as bad as expected. Consumer prices rose higher than expected. The headline figure rose 0.2% and the core rate, which excludes volatile food and energy, rose 0.3%. Fortunately the Greek debt worries continued and some flight to quality buying of mortgage bonds ensued Thursday morning. Unfortunately mortgage bonds still ended the week worse by about 1/4 to 3/8 of a discount point.

The Fed meeting and the comments that follow will be very important this week. The beginning of the week is void of any significant data but the end of the week has some events that may result in mortgage interest rate volatility.

LOOKING AHEAD

  • Existing Home Sales; June 21; Consensus Estimate 5.04m; Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates.
  • Fed Meeting Adjourns; June 22; Consensus Estimate No rate change; Important. Few expect the Fed to raise rates, but some volatility may surround the adjournment of this meeting.
  • Weekly Jobless Claims; June 23; Consensus Estimate 420k; Important. An indication of employment. Higher claims may result in lower rates.
  • New Home Sales; June 23; Consensus Estimate 340k; Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
  • 30Y TIPS Treasury Bond Auction; June 23; Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates.
  • Q1 Revised GDP; June 24; Consensus Estimate Up 1.8%; Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
  • Durable Goods Orders; June 24; Consensus Estimate Down 0.9%; Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates.

FED MEETING  The United States central bank, the Federal Reserve, coordinates the borrowing and lending activities of federally chartered banks. The principal reason the Federal Reserve was created was to reduce severe financial crises. One way of accomplishing this goal is to control the amount of money that flows through the economy. By manipulating the US money supply, the Fed influences inflation, unemployment, and the level of US economic activity. The Fed has a variety of tools that it uses to control the money supply, but its chief policy tool is the manipulation of short-term interest rates.

The Federal Reserve can adjust two distinct short-term interest rates. The discount rate is the interest rate which banks pay the Fed for primarily overnight loans. Despite its name, the Fed funds rate is the rate banks pay to borrow from other banks. The Federal Reserve has direct control over the level of short-term interest rates, the Fed’s influence over longer-term interest rates is less certain. All eyes will be focused on the Fed meeting Wednesday. Most analysts predict no rate change.

Keep in mind that a Fed rate change does not automatically mean mortgage interest rates will change. The Federal Reserve has direct control over the level of short-term interest rates. The Fed’s influence over longer-term interest rates is less certain. A cautious approach to float/lock decisions is prudent heading into the Fed meeting this week. Market volatility is likely.

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 May 9, 2011…

MARKET COMMENT   Mortgage bond prices rose last week pushing mortgage interest rates lower. We were positive throughout most of the week as stocks struggled and oil prices fell. The ADP employment figure was lower than expected and weekly jobless claims were higher than expected which generally helped mortgage bonds. Unfortunately the payrolls component of the employment report Friday morning surprised to the upside and some of the earlier improvements were erased. Mortgage bonds ended the week better by about 1/4 of a discount point. 

The inflation data will take center stage this week. Any surprises to the upside on the consumer or producer sides will likely put upward pressure on rates. Foreign demand for the auctions this week will also be important. 

LOOKING AHEAD 

  • 3-year Treasury Note Auction; May 10; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Trade Data; May 11; Consensus Estimate $45.5b deficit; Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
  • 10-year Treasury Note Auction; May 11; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Weekly Jobless Claims; May 12; Consensus Estimate 455k; Important. An indication of employment. Higher claims may result in lower rates.
  • Producer Price Index; May 12; Consensus Estimate Up 0.6%, Core up 0.4%; Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates.
  • Retail Sales; May 12; Consensus Estimate Up 0.3%; Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
  • 30-year Treasury Bond Auction; May 12; Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates.
  • Consumer Price Index; May 13; Consensus Estimate Up 0.6%, Core up 0.2%; Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates.
  • U of Michigan Consumer Sentiment; May 13; Consensus Estimate 69.5; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

CONSUMER PRICE INDEX  The Consumer Price Index is widely accepted as the most important measure of inflation. The CPI is a measure of prices at the consumer level for a fixed basket of goods and services. The National Statistics Office and the Bureau of Agricultural Statistics of the Department of Agriculture collect price data for the computation of the CPI. Since it is an index number, it compares the level of prices to a base period. By comparing the level of the index at two different points in time, analysts can determine how much prices have risen in that period. Unlike other measures of inflation, which only factor domestically produced goods; the CPI takes into account imported goods as well. This is important due to the ever-increasing reliance of the US economy upon imported goods. Analysts primarily focus on the core rate of the CPI which factors out the more volatile food and energy prices. Record debt levels continue to weigh heavily upon the financial markets. The Fed has tried to pump up the economy but in doing so has stoked inflation fears. 

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 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 7, 2011…

MARKET COMMENT   Mortgage bond prices fell last week pushing mortgage interest rates considerably higher. Turmoil in many of the oil producing countries continued to push oil prices higher. Weekly jobless claims came in significantly lower than expected which sent mortgage interest rates higher as stocks recovered. The employment report Friday was slightly better than expected, however bond prices did not suffer. Traders were relieved the data did not mirror weekly jobless claims and show a surge in job creation. 

Mortgage bonds ended the week worse by a 5/8 of a discount point. 

The foreign demand for the Treasury auctions will continue to factor into trading this week. Rates may improve if foreign central banks continue to support our debt auctions. However, the opposite is also true, weak demand will pressure rates higher. 

LOOKING AHEAD 

  • Consumer Credit; March 7; Consensus Estimate $5.5b; Low importance. A significantly large increase may lead to lower mortgage interest rates.
  • 3-year Treasury Note Auction; March 8; Important. $32 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • 10-year Treasury Note Auction; March 9; Important. $21 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Weekly Jobless Claims; March 10; Consensus Estimate 375k; Important. An indication of employment. Higher claims may result in lower rates.
  • Trade Data; March 10; Consensus Estimate $41b; Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
  • 30-year Treasury Bond Auction; March 10; Important. $13 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates.
  • Retail Sales; March 11; Consensus Estimate Up 0.4%; Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
    U of Michigan Consumer Sentiment; March 11; Consensus Estimate 76; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
  • Business Inventories; March 11; Consensus Estimate Up 0.7%; Low importance. An indication of stored-up capacity. A significantly larger increase may lead to lower rates.  

FUNDAMENTAL WEEK   The abundance of fundamental data this week provides a good opportunity for mortgages to improve. If the data shows weakness in the economy with little or no inflationary pressures then it is possible for mortgage bonds to rally resulting in mortgage interest rate decreases. However, if the data shows that the economy continues to rebound or any significant signs of inflation, mortgage bonds may fall pushing mortgage interest rates higher. 

Mortgage interest rates remain historically favorable despite some recent increases. Now is a great time to avoid the uncertainty surrounding continued market volatility. Remember, 6 months ago the majority of analysts thought rates would continue to fall. The future is uncertain with so much global economic instability. Escalating energy prices currently dominate headlines. We have been able to avoid any rate hikes typically associated with that but it is very possible for rates to spike higher in the short term. Caution is key! 

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