Mortgage Market Review - 8/3/09

This Morning…Monday, August 3, 2009:
In early trading, the 10 year note was under pressure and the 30 year bond was down over 1 full point. As a result, mortgage prices opened up weaker. Overseas, Barclays and HSBC reported stronger earnings results beating the forecasts. This added to the strength in equities. The DJIA opened up about 40 points and bonds and mortgages were still down about the same as in early trading. Commodity prices are surging as China reported strong manufacturing results for July and as demand in Asia remains robust. The dollar is also getting slammed this morning and is trading at new lows for 2009. Crude oil futures are up about $2 sending the cost of a barrel over $70. Investor news has been light as the end of summer is nearing.

Last Week:
Mortgage bond prices rallied Thursday afternoon and Friday pushing mortgage interest rates lower. Bond friendly Core PCE inflation data came in lower than expected. The Fed’s most recent estimates call for an increase in this figure by the end of the year. The fact that the data showed lower inflation helped mortgage bonds rally. June home sales were up 11.0% and got a lot of ink. but sales increasing 11.0% from these very low levels, while a step in the right direction, isn't likely to light a fire in the housing markets, it must keep going. Consumer confidence came in at a weaker than expected mark. The Treasury auctions were mixed. The 2 and 5 year note auctions received poor foreign demand while the 7 year auction showed strong foreign demand.

This Week:
The economic calendar has a number of important items; June personal income and spending, the two ISM surveys (manufacturing and services), weekly jobless claims. Friday is the big one with the July employment statistics; early estimates are for job losses to be down 333K after 467K jobs lost in June, the unemployment rate at 9.6%, up from 9.5% in June. Undoubtedly there will be some re-thinking the estimates as we approach Friday. On Wednesday the ADP jobs report is estimated at 345K job losses, ADP however does not calculate government jobs. Late Friday afternoon June consumer credit data hits, in normal times it doesn't generate much attention, these times we pay a lot of attention to it as it provides another peek into consumer spending.

EconomicIndicator
Construction Spending
Monday, Aug. 3,10:00 am, et
Down 0.6%
Low importance. An indication of economic strength. A significant decrease may lead to lower rates.
ISM Index
Monday, Aug. 3,10:00 am, et
46.5
Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
Personal Income and Outlays
Tuesday, Aug. 4,8:30 am, et
Down 1.0%,Up 0.3%
Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
ADP Employment
Wednesday, Aug. 5,8:30 am, et
Down 340k
Important. An indication of employment. A larger decrease in payrolls may bring lower rates.
Factory Orders
Wednesday, Aug. 5,10:00 am, et
Up 0.5%
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
Employment
Friday, Aug. 7,8:30 am, et
9.6%,Down 333k
Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates.
Consumer Credit
Friday, Aug. 7,2:00 pm, et
Down $4.1 billion
Low importance. A significantly larger than expected increase may lead to lower mortgage interest rates.

Market Forecast:
The employment report will be the most important release this week. With so many data releases expect the market to be very volatile. I will definitely stay in touch.

Some Humor:
A little guy is sitting at the bar just staring at his drink for half an our when this big trouble-making biker steps next to him, grabs his drink, gulps it down in one swig and then turns to the guy with a menacing stare as if to say “What cha gonna do about it?”
The poor little guy starts crying.
“Come on man I was just giving you a hard time,” the biker says. “I didn't think you'd CRY. I can't stand to see a man crying.”
“This is the worst day of my life,” says the little guy between sobs. “I can't do anything right. I overslept and was late to an important meeting, so my boss fired me. When I went to the parking lot, I found my car was stolen and I don't have any insurance. I left my wallet in the cab I took home. I found my wife in bed with the gardener and my dog bit me. So I came to this bar trying to work up the courage to put an end to my life, --- and then you show up and drink the damn poison.”