LAST WEEK
Last week mortgage bonds ended the week on higher than when the week began. The week had a wide variety of economic news and reports for the market to digest. Monday and Tuesday we had a look at the housing sector with New and Existing home sales reports. The Existing home sales report showed more homes sold than expected but the inventory of unsold homes also grew to a 11.2 month supply. The New Home sales report was released on Tuesday showing an increase in sales but it was below the estimates and the unsold inventory was lower than June coming in at 10.7 months. Also on Tuesday was the minutes from the last Fed meeting showing the debate continues with the Fed officials weather to keep interest rates low or combat inflation by raising them. Thursday 2nd Quarter GDP was released at 3.3% far above the initial estimate of 1.9%. It turns out that much of this growth was a result of our Exports not domestic growth. Friday the PCE report was released which is the Fed's favorite gauge of inflation. It reported that the year-over-year Core PCE rate was 2.4%, much higher than the Fed comfort level of 1-2%.
THIS WEEK
This week has started off on a positive note for the bond market. The price of oil dropped below the 200-day moving average after Hurricane Gustav spared the energy facilities in the Gulf of Mexico. This is the first time on over a year that oil prices have fallen below this important technical lever, presently at $111.39 per barrel. If oil prices fail to build up steam and break above this level they may test the next technical level at $100 per barrel. This could be great news for bond traders since energy prices have been a driving force for inflation. With the price of oil dropping the inflation fears lessen giving a boost to mortgage bonds. The big report will this week will be the employment report scheduled for release on Friday. The Employment report is always highly anticipated by the markets and can cause big moves in the market depending how it is digested by the markets. The ADP employment report will be released on Wednesday; this can also be a market mover. It is seen as a indicator of how the governments employment report will look on Friday so if it varies greatly from expectations we may see the markets react. The other potential market movers this week will the speeches from many Federal Reserve officials. The markets listen carefully to that the Fed members say to try to get an indication of what they will do at the next Fed meeting.
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