Mortgage Market Review - 8/31/09

This Morning…Monday, August 31, 2009:
Today is the Chicago Purchasing Manager’s Index. With no news yet, the bond market is seeing a slight rally. At 9:30 the DJIA opened -75 and mortgage rates were slightly lower.

Last Week:
It was a little better in the rate markets. Choppy trade once again characterized the action last week. Treasury had little trouble selling $109B of notes while new home sales increased in July. July durable goods orders had the biggest monthly increase since July 2007, consumer confidence increased, and weekly jobless claims declined. Nice week but the stock market barley held on and interest rates fell; significant in that with the confirming economic data recently supporting stock markets, the equity market may be running out of energy. Once the stocks finally tip over the bond and mortgage markets will experience a nice rally.

This Week:
The week ahead is filled with key economic readings. Tomorrow we’ll have Construction Spending, Pending Home Sales, and the ISM Index; Wednesday Factory Orders, the minutes from the Fed meeting, and the always-questionable ADP Employment Survey; Thursday Jobless Claims,; and then on Friday, when everyone is trying to leave town (whatever town they happen to be in), all of the Nonfarm Payroll data. This could possibly be a rough trading week. You’ll want to stay tuned!

EconomicIndicator
Construction Spending
Tuesday, Sept. 1,10:00 am, et
Down 0.2%
Low importance. An indication of economic strength. Significant weakness may lead to lower rates.
ISM Index
Tuesday, Sept. 1,10:00 am, et
50.2
Important. A measure of manufacturer sentiment. A larger decline may lead to lower mortgage rates.
ADP Employment
Wednesday, Sept. 2,8:30 am, et
-246k
Important. An indication of employment. A larger decrease in payrolls may bring lower rates.
Revised Q2 Productivity
Wednesday, Sept. 2,8:30 am, et
Up 6.1%
Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
Factory Orders
Wednesday, Sept. 2,10:00 am, et
Up 1.5%
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
Fed Minutes
Wednesday, Sept. 2,2:00 pm, et
None
Important. Details of the last Fed meeting will be thoroughly analyzed.
Employment
Friday, Sept. 3,8:30 am, et
9.5%,-225k
Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates.

Market Forecast:
The employment report Friday will be the most important data this week. ISM Index data and revised productivity data may also move the market. Continued stock strength may also pressure rates. Technically the rate markets are in good shape; all of our analysis points to lower rates. Problem is however, there is a high degree of uncertainty and with volatility on the high side any sustained reversal could easily turn the markets around. Timing is based on when the equity markets actually sustain selling for more than a day or tow as has been the case all summer.

Some Humor:
A US Congressman is up for re-election and out on the campaign trail. He's driving by an Indian reservation and decides to stop in and stump for votes. A crowd of tribe members surrounds him as he gets started.
"I will lower your taxes, get you good jobs, and make sure your kids are healthy and educated", said the Congressman.
"Oom Galla Galla", answered the tribe.
"I'll make sure you have more money so you can purchase a new F150 truck!" said the Congressman.
"Oom Galla Galla", cheered the tribe.
"Together, we can bring the casinos in so your tribe will enjoy perpetual wealth!" said the Congressman.
"Oom Galla Galla", thundered the tribe.
After a few more grand promises and louder cheers of "Oom Galla Galla" from the crowd, the Congressman is offered a tour of the reservation, which he readily accepts.
He notices a herd of fat and healthy cattle and asks, "Chief, May I go take a closer look at your heifers and steers?" to which the Chief smilingly replied, "Sure, but don't step in the Oom Galla Galla".

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