Mortgage Market Review - 11/30/09

This Morning…Monday, November 30, 2009:
The United Arab Emirates since has come out saying it will lend money to the Dubai banks involved and that has settled things a little this morning. What UAE has not said however, is whether that central bank will stand with Dubai World, the island making venture that has ruin out of buyers. Estimates of the combined debt being default are ranging from $80B to $120B but no one really has a handle yet. The market is volatile this morning.

Last Week:
Interest rates improved slightly last week. The day prior to Thanksgiving, the results of the 7-year note were very strong, New Home Sales were up over 6% in October, much better than the drop that experts had forecast, and inventories shrank to about a 6.7 month supply at the current sales rate. Weekly jobless claims fell and for the first time in months total weekly claims were below 500K. We also had Consumer Spending pick up a little bit, which may give retailers a little hope for the upcoming buying season.
While here in the US we celebrated Thanksgiving the rest of the world went about business as usual; but it wasn't without a problem. Thursday Dubai announced it would ask for a moratorium on its outstanding debt, unable to pay for those grandiose ventures like an indoor snow ski resort in the middle of the desert and Dubai World. One more debt mess hitting. The reaction sent global equity markets down and a flight to safety in sovereign debt. Though US banks are not too involved in the Dubai crisis, most of Dubai's debt is held in Europe and the problem re-lights concern that debt problems are still out there and could re-surface at anytime.
This Week:
There is a heavy economic calendar this week with the Nov employment data bringing up the rear on Friday. Today we have the Chicago Purchasing Manager’s Survey at 9:45 EST. Tomorrow will be Construction Spending and ISM, Wednesday is the Fed’s Beige Book, Thursday Jobless Claims, and then on Friday is all of the unemployment data.
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. 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.

EconomicIndicator
Construction Spending
Tuesday, Dec. 1,10:00 am, et
Down 0.4%
Low importance. An indication of economic strength. Significant weakness may lead to lower rates.
ISM Index
Tuesday, Dec. 1,10:00 am, et
54.8
Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
ADP Employment
Wednesday, Dec. 2,8:30 am, et
-155,000
Important. A measure of employment. Payroll weakness may bring lower rates.
Fed "Beige Book"
Wednesday, Dec. 2, 2:00 pm, et
None
Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
Revised Q3 Productivity
Thursday, Dec. 3,8:30 am, et
8.5%
Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
Q4 Employment Cost Index
Thursday, Dec. 3,8:30 am, et
Up 0.4%
Very important. A measure of wage inflation. Weakness may lead to lower rates.
Employment
Friday, Dec. 4,8:30 am, et
Jobs -120,000Unemp @ 10.2%
Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates.
Factory Orders
Friday, Dec. 4,10:00 am, et
+0.2%
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.

Market Forecast:
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 "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.
The potential for market volatility is increased when these types of reports are released. Be cautious heading into this and the other important releases this week.

Some Humor:
John was a salesman's delight when it came to any kind of unusual gimmick. One day he came home with another one of his unusual purchases: a robot that John claimed was actually a lie detector.
It was about 5:30 that afternoon when Tommy, their 11 year old son, returned home from school. Tommy was over 2 hours late.
“Where have you been? Why are you over 2 hours late getting home?” asked John.
“Several of us went to the library to work on an extra credit project,” said Tommy.
The robot then walked around the table and slapped Tommy, knocking him completely out of his chair.
“Son,” said John, “this robot is a lie detector, now tell us where you really were after school.”
“We went to Bobby's house and watched a movie,” said Tommy.
“What did you watch?” asked Marsha.
“The Ten Commandments.” answered Tommy. The robot went around to Tommy and once again slapped him, knocking him off his chair once more.
With his lip quivering, Tommy got up, sat down and said, “I am sorry I lied. We really watched a porno tape.'’
“I am ashamed of you son,” said John. “When I was your age, I never lied to my parents.”
The robot then walked around to John and delivered a whack that nearly knocked him out of his chair.
Marsha doubled over in laughter, almost in tears and said, “Boy, did you ever ask for that one! You can't be too mad with Tommy. After all, he is your son!”
With that the robot immediately walked around to Marsha and knocked her out of her chair.


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