Market Comment for Week of March 21, 2011…

MARKET COMMENT Mortgage bond prices rose last week helping mortgage interest rates improve. Flight to safety buying of US debt instruments helped rates improve as the Japanese stock market struggled. Oil prices eased a bit early in the week. However, clashes in Saudi Arabia Thursday sent prices back above $100/barrel. Core inflation readings remained relatively in check however the headline figures exceeded expectations. The Fed’s recent statement noted “short-term” increases in food and energy prices but indicated the spikes are not expected to spill over to the core. Despite the mixed data mortgage bonds ended the week better by about 1/4 of a discount point.

The weekly jobless data and Treasury auction will receive a lot of attention this week amid continued global economic uncertainty.

LOOKING AHEAD
• Existing Home Sales; March 21; Consensus Estimate Down 6%, 5.05M; Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates.
• New Home Sales; March 23; Consensus Estimate Unchanged, 288k; Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
• Weekly Jobless Claims; March 24; Consensus Estimate 384k; Important. An indication of employment. Higher claims may result in lower rates.
• Durable Goods Orders; March 24; Consensus Estimate Up 0.8%; Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates.
• 10YR TIPS Treasury Note Auction; March 24; Important. $11 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
• Q4 GDP 3rd estimate; March 25; Consensus Estimate 2.9%; Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
• U of Michigan Consumer Sentiment; March 25; Consensus Estimate 68; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

EXISTING HOME SALES The National Association of Realtors releases existing home sales data near the end of each month. The data is derived from a sampling of MLS data across the nation. The release shows the current sales rate for existing single-family, coops, and condos. A national figure and 4 regional figures are provided. The NAR Chief Economist indicated in February the current methodology used to calculate the benchmarks will be revised in the near future. There is no timetable for the revision.

The housing market is a critical component of the US economy. A house is usually one of the largest assets a consumer owns. Housing usually leads market recoveries. Unfortunately the housing industry remains in transition as the effects of massive foreclosures still weigh heavily. Most analysts agree that the housing market will remain wobbly for some time. The important thing to remember is that housing is a “local” issue. The maxim about housing being strongly tied to “location, location, location” still holds true. The overall housing market shows signs of trouble while there are areas that don’t follow the overall trend.

While the data usually isn’t a big market mover it still has the potential to result in some market volatility. The release usually includes remarks from the Chief Economist regarding prices, inventory, and interest rates.

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 28, 2011…

MARKET COMMENT   Mortgage bond prices rose last week helping mortgage interest rates fall. Turmoil in many of the oil producing countries sent oil prices skyrocketing higher. Normally rising energy prices cause inflation fears but we are not in normal times. Rising energy prices ignited concerns about the global economic recovery and sent a wave of buying into US debt instruments. Data was mixed. Weekly jobless claims and new home sales were lower than expected while consumer confidence and consumer sentiment data were higher than expected. The Treasury auctions generally went well and did not move the market much. Mortgage bonds ended the week positive by a favorable 7/8 of a discount point. 

PCE core inflation data leads the wave of significant data this week and the employment report will be the headline release Friday morning. 

LOOKING AHEAD 

  • Personal Income and Outlays; Feb. 28; Consensus Estimate Up 0.3%, Up 0.4%; Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
  • PCE Core Inflation; Feb. 28; Consensus Estimate Up 0.1%; Important. A measure of price increases for all domestic personal consumption. Weakness may help rates improve.
  • ISM Index; March 1; Consensus Estimate 60; Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
  • ADP Employment; March 2; Consensus Estimate 155k; Important. An indication of employment. Weakness may bring lower rates.
  • Fed “Beige Book”; March 2; Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
  • Weekly Jobless Claims; March 3; Consensus Estimate 390k; Important. An indication of employment. Higher claims may result in lower rates.
  • Revised Q4 Productivity; March 3; Consensus Estimate Up 2.3%; Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
  • Employment Friday; March 4; Consensus Estimate Unempl. 9.1%, Payrolls 190k; Very important. An increase in unemployment or weaker payrolls may bring lower rates.
  • Factory Orders; March 4; Consensus Estimate Up 2.1%; Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.

FED “BEIGE BOOK”   The Fed “Beige Book” is a summary of economic conditions from each of the 12 Federal Reserve regional districts. The release takes place eight times a year approximately two weeks ahead of each of the Federal Open Market Committee meetings. The report is used at the FOMC meetings, which tends to be one of the most influential events in the market. 

Market participants are continually attempting to determine what FOMC interest rate policy will be ahead of the next meeting. Any deviation from expectations usually results in extreme short-term market volatility. The timing of the “Beige Book” provides analysts a valuable look at one of the many factors the FOMC considers in setting interest rate policy. If the “Beige Book” shows signs of inflationary pressures, the Fed’s ability to keep rates lower may be somewhat restricted. However, if the report shows signs of difficulties, the Fed may keep rates low to stimulate the economy. Be cautious heading into this release. 

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 21, 2011…

MARKET COMMENT   Mortgage bond prices rose last week helping mortgage interest rates fall. Weaker than expected industrial production data helped start the week on a positive note for lower rates. Retail sales rose 0.3%, weaker than the expected 0.5% increase and very bond friendly. We were very fortunate to have rates hold mid week despite higher than expected core inflation at the producer and consumer levels. Inflation readings finally started to show what most analysts and consumers have known for some time. Higher than expected jobless claims and weaker than expected leading economic indicators data Thursday kept rates moving in the right direction. Mortgage bonds ended the week positive by a favorable 1/2 of a discount point. 

The Treasury will have another round of auctions this week. If demand falters rates could be adversely affected. 

LOOKING AHEAD 

  • Consumer Confidence; Feb. 22; Consensus Estimate 63.0; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
  • 2-year Treasury Note Auction; Feb. 22; Important. $35 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • 5-year Treasury Note Auction; Feb. 23; Important. $35 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Weekly Jobless Claims; Feb. 24; Consensus Estimate 410k; Important. An indication of employment. Higher claims may result in lower rates.
  • Durable Goods Orders; Feb. 24; Consensus Estimate Down 0.8%; Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates.
  • New Home Sales; Feb. 24; Consensus Estimate Up 1.9%; Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
  • 7-year Treasury Note Auction; Feb. 24; Important. $29 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Q4 GDP second estimate; Feb. 25; Consensus Estimate Up 3.3%; Important. The aggregate measure of US economic production. Weakness may lead to lower rates.
  • U of Michigan Consumer Sentiment; Feb. 25; Consensus Estimate 75; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

CONSUMER CONFIDENCE   The Conference Board releases the Consumer Confidence Index on the last Tuesday of every month. The report details the levels of confidence individual households have in the performance of the economy. The data is derived from a survey of 5,000 households nationwide. The survey polls consumer opinions on current business conditions, their jobs, their incomes, and their future spending plans. 

The consumer confidence index is significant in that it provides a precursor into consumers’ willingness to spend in the months ahead. However, many analysts point out that willingness to spend does not always convert to actual expenditures. 

This week’s release will be eagerly anticipated. Look for any variation from estimates to cause mortgage interest rate volatility. Signs of eroding consumer confidence could lead to improvements in mortgage interest rates. However, stronger than expected figures could spike rates higher. 

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 31, 2011…

MARKET COMMENT   Mortgage bond prices rose last week pushing mortgage interest rates lower. There were several Treasury auctions and most resulted in decent foreign demand. Stock strength the middle of the week along with higher than expected new home sales put some upward pressure on rates. Volatile oil prices also factored into trading. Saudi remarks indicated they might increase production. This helped stem some of the oil price spikes in the middle of the week but world benchmark prices remained near the $100/barrel mark and US benchmark prices were near $90/barrel as unrest in Egypt continued. Stock weakness and weaker than expected GDP figures led to rate improvements Friday afternoon. Mortgage bonds ended the week positive by about 1/8 to 1/4 of a discount point despite the continued market swings. 

LOOKING AHEAD 

  • Personal Income and Outlays; Jan. 31; Consensus Estimate Up 0.3%, Up 0.4%; Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
  • PCE Core Inflation; Jan. 31; Consensus Estimate Up 0.1%; Important. A measure of price increases for all domestic personal consumption. Weakness may help rates improve.
  • Construction Spending; Feb. 1; Consensus Estimate Up 0.3%; Low importance. An indication of economic strength. Significant weakness may lead to lower rates.
  • ISM Index; Feb. 1; Consensus Estimate 56.5; Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
  • ADP Employment; Feb. 2; Consensus Estimate 240k; Important. An indication of employment. Weakness may bring lower rates.
  • Revised Q4 Productivity; Feb. 3; Consensus Estimate Up 2.4%; Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
  • Weekly Jobless Claims; Feb. 3; Consensus Estimate 444k; Important. An indication of employment. Higher claims may result in lower rates.
  • Factory Orders; Feb. 3; Consensus Estimate Up 0.5%; Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
  • Employment; Feb. 4; Consensus Estimate 9.5%, Payrolls up 85k; Very important. An increase in unemployment or weakness in payrolls may bring lower rates.

ISM   The Institute for Supply Management (ISM), formerly the National Association of Purchasing Management (NAPM), releases the “Report on Business” on the first working day of each month. Part of this report is the “diffusion index,” which tracks the economy’s ups and downs fairly well. 

In conducting this survey, the ISM questions purchasing executives from over 250 industrial companies compiling data on production, orders, commodity prices, inventories, vendor performance, and employment. Each of the respondents is asked to rank the categories as “up” or “down.” Various weights are applied to the individual components to form the composite index. 

A composite index reading of 50 can be thought of as a “swing point.” A reading above 50 implies an increase in economic activity, while a reading below 50 indicates a decline. The ISM report is difficult for economists to forecast because there is little data upon which to base an educated guess. The report has a large “surprise factor” and can cause market swings. 

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 January 24, 2011…

MARKET COMMENT   Mortgage bond prices started in negative territory and that carried through most of the week. Spain and Portugal had relatively successful bond auctions, which reversed the flight to quality buying of US debt instruments that helped rates fall. Lower than expected weekly jobless claims Thursday added to the losses causing rates to spike higher. Analysts were looking for jobless claims at 425k and the actual release showed claims at 404k. Leading economic indicators were higher than expected with an increase of 1% compared to the anticipated 0.6% increase. Mortgage bonds ended the week negative by about a full discount point. 

The Fed meeting will take center stage this week. Look for the continued Treasury auctions to also factor into mortgage interest rate changes. 

LOOKING AHEAD 

  • Consumer Confidence; Jan. 25; Consensus Estimate 54.2; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
  • 2-year Treasury Note Auction; Jan. 25; Important. $35 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • New Home Sales; Jan. 26; Consensus Estimate 300k; Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
  • 5-year Treasury Note Auction; Jan. 26; Important. $35 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Fed Meeting Adjourns; Jan. 26; Important. Few expect the Fed to change rates, but volatility may surround the adjournment of this meeting.
  • Weekly Jobless Claims; Jan. 27; Consensus Estimate 425k; Important. An indication of employment. Higher claims may result in lower rates.
  • Durable Goods Orders; Jan. 27; Consensus Estimate 1.9%; Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates.
  • 7-year Treasury Note Auction; Jan. 27; Important. $29 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
  • Advance Q4 GDP; Jan. 28; Consensus Estimate 3.8%; Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
  • Q4. Employment Cost Index; Jan. 28; Consensus Estimate 0.4%; Very important. A measure of wage inflation. Weaker figure may lead to lower rates.

FED FOCUS   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. 

No rate changes are expected at the Wednesday meeting but there is concern about the future considering the Dallas and Kansas City Federal Reserve banks requested a discount point hike. 

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