MARKET COMMENT
Mortgage bond prices rose last week pushing mortgage interest rates lower. The economic data continues to be mixed. Personal income, outlays, and PCE inflation data were stronger than expected. Trading was thin and erratic. Thin trading conditions, news of the looming debt crisis in Dubai and a continued influx of Fed money into the mortgage bond market helped rates improve.
Interest rates finished the week improved by about 1/2 of a discount point.
The employment report will be the most important release this week. This is one of those weeks where there are many economic releases classified as very important or important. The potential for market volatility is increased when these types of reports are released. Be alert throughout the entire week.
LOOKING AHEAD
|
Economic |
Release |
Consensus |
Analysis |
|
Construction Spending |
Tuesday, |
Down 0.4% |
Low importance. An indication of economic strength. Significant weakness may lead to lower rates. |
|
ISM Index |
Tuesday, |
54.8 |
Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates. |
|
ADP Employment |
Wednesday, |
-155,000 |
Important. A measure of employment. Payroll weakness may bring lower rates. |
|
Fed "Beige Book" |
Wednesday, |
None |
Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates. |
|
Revised Q3 Productivity |
Thursday, |
8.5% |
Important. A measure of output per hour. Improvement may lead to lower mortgage rates. |
|
Q4 Employment Cost Index |
Thursday, |
+0.4% |
Very important. A measure of wage inflation. Weakness may lead to lower rates. |
|
Employment |
Friday, |
Jobs -120,000 |
Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates. |
|
Factory Orders |
Friday, |
+0.2% |
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.
The "Beige Book" release on Wednesday should provide market participants with valuable insight into what the Fed will do and how mortgage interest rates will respond in the short-term. Be cautious heading into this and the other important releases this week.
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