Mortgage Market Review - 9/28/09

This Morning…Monday, September 28, 2009:
Treasuries and mortgages opened fractionally lower this morning after two strong days to end last week. There is no economic data to think about today, but the week has a lot to consider with the Sept employment anchoring all of it on Friday.

Last Week:
Mortgage bond prices rose last week pushing mortgage interest rates somewhat lower. The data was mixed with stronger than expected consumer sentiment and a disappointing 5-year Treasury note auction. Fortunately the Fed meeting resulted in some positive mortgage interest rate movements and strong foreign demand for the 7-year Treasury auction helped rates improve.

This Week:
This week we will see quite a bit of economic news that may end up moving rates. As I mentioned, today there is no news, but tomorrow we have the Consumer Confidence numbers, which is generally a market mover. On Wednesday we have the Chicago Purchasing Manager’s Index, and on Thursday Jobless Claims, Pending Home Sales, the ISM number, and the Treasury’s announcement of next week’s auctions. On Friday we will have the Unemployment Data, always sure to grab headlines. Estimates are that the Unemployment Rate will increase from 9.7% to 9.9%. And for good measure this week we’ll also see Personal Income & Consumption, Final GDP, Construction Spending, and Factory Orders. This will be a critical week for the markets. Expect continued volatility in all financial markets.

EconomicIndicator
Consumer Confidence
Tuesday, Sept. 29,10:00 am, et
57.0
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
ADP Employment
Wednesday, Sept. 30,8:30 am, et
Down 200k
Important. An indication of employment. A larger decrease may bring lower rates.
Q2 GDP final revision
Wednesday, Sept. 30,8:30 am, et
Down 1.2%
Moderately important. The aggregate measure of US economic production. Weakness may lead to lower rates.
Personal Income and Outlays
Thursday, Oct. 1,8:30 am, et
Income up 0.1%,Outlays up 1.0%
Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
Construction Spending
Thursday, Oct. 1,10:00 am, et
Down 0.2%
Low importance. An indication of economic strength. A significant decrease may lead to lower rates.
ISM Index
Thursday, Oct. 1,10:00 am, et
54.0
Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
Employment
Friday, Oct. 2,8:30 am, et
9.8%,-188k
Very important. An increase in unemployment or a larger decrease in payrolls may bring lower rates.
Factory Orders
Friday, Oct. 2,10:00 am, et
Up 1.1%
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.

Market Forecast:
The employment report will take center stage this week. Consumer confidence, ADP employment, income, outlays, ISM Index, and factory orders data also have the potential to move the financial markets. The recent economic data has been mixed. Remember that the bond market typically likes to see weaker figures with very little price pressures.
The Fed provided some good news last week when they indicated the purchasing of mortgage bonds would be extended into the first quarter of 2010. Prior to the meeting all indications were the program would stop the end of this year. The Fed also indicated that long term inflation expectations were stable. This is great news for fixed income securities and the stability of mortgage interest rates. Remember, the current goal of the Fed is to keep mortgage interest rates relatively low and stable. They appear to be content with rates in the current historically favorable range.

Some Humor:
A minister decided that a visual demonstration would add emphasis to his Sunday sermon. Four worms were placed into four separate jars. The first worm was put into a container of alcohol. The second worm was put into a container of cigarette smoke. The third worm was put into a container of chocolate syrup. The fourth worm was put into a container of good clean soil.
At the conclusion of the sermon, the Minister reported the following results:
The first worm in alcohol - Dead.
The second worm in cigarette smoke – Dead.
Third worm in chocolate syrup – Dead.
Fourth worm in good clean soil - Alive.
So the Minister asked the congregation, “What can you learn from this demonstration?”
Maxine was sitting in the back, quickly raised her hand and said, “As long as you drink, smoke and eat chocolate, you won't have worms!”

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