Mortgage Market Review - 1/11/10

This Morning…Monday, January 11, 2010:
It’s quiet in the markets this morning with no economic releases scheduled. Treasuries and mortgage rates opened slightly better than Friday’s close.

Last Week:
Mortgage bond prices rose last week pushing mortgage rates slightly higher. The bond market was buoyed by the announcement that US Treasury increased the credit lines of Fannie Mae and Freddie Mac a total of $400 billion. This was a signal to investors that those entities are "too big to fail" as viewed by the Treasury. We saw some weakness Thursday afternoon as retailers reported stronger than expected holiday sales. Also, Nov pending home sales plunged 16% which was 5 times greater than forecasts. The overall unemployment rate at 10.0% was unchanged from Nov. This can be spun in any direction, but we come back the reality that jobs are not being created, just firings have slowed. Surprisingly, the report was somewhat bond friendly.

This Week:
This week the economic calendar is pretty light until later in the week. Until then we have tomorrow’s Trade Balance figures (usually not a big deal for interest rates) and the Fed's Beige Book on Wednesday. But on Thursday we have Jobless Claims, Import Prices, and Retail Sales. And on Friday we have the Consumer Price Index (CPI), Industrial Production, Capacity Utilization, Consumer Sentiment, and the Empire State Index. Throw in some Treasury auctions Tuesday through Thursday and we could see some volatility.

EconomicIndicator
Trade Data
Tuesday, Jan. 12,8:30 am, et
$34.8 billion deficit
Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
3-year Treasury Note Auction
Tuesday, Jan. 12,1:00 pm, et
None
Important. $40 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Fed "Beige Book"
Wednesday, Jan 13, 2:00 pm, et
None
Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
10-year Treasury Note Auction
Wednesday, Jan. 13,1:00 pm, et
None
Important. $21 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.
Retail Sales
Thursday, Jan. 14,8:30 am, et
Up 0.4%
Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
30-year Treasury Bond Auction
Thursday, Jan. 14,1:30 pm, et
None
Important. $13 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates.
Consumer Price Index
Friday, Jan. 15,8:30 am, et
Up 0.2%,Core up 0.1%
Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates.
Industrial Production
Friday, Jan. 15,9:15 am, et
Up 0.6%
Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates.
Capacity Utilization
Friday, Jan. 15,9:15 am, et
71.8%
Important. A figure above 85% is viewed as inflationary. Weakness lower mortgage interest rates.
U of Michigan Consumer Sentiment
Friday, Jan. 15,10:00 am, et
73.8
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

Market Forecast:
The inflation data Friday will be the most important economic data this week. Signs of stronger than expected inflation would not be good for mortgage interest rates. The Treasury auctions will also dominate trading. If we have stronger than normal foreign demand, it could bode well for the overall level of interest rates and weaker than expected bids would likely result in interest rate increases.

Some Humor: (the very last Christmas joke…I promise!)
Three men died on Christmas Eve and were met by Saint Peter at the pearly gates.
“In honor of this holy season,” Saint Peter said, “You must each possess something that symbolizes Christmas to get into heaven.”
The first man fumbled through his pockets and pulled out a lighter. He flicked it on. “It represents a candle,” he said. “You may pass through the pearly gates,” Saint Peter said.
The second man reached into his pocket and pulled out a set of keys. He shook them and said, “They're bells.”Saint Peter said, “You may pass through the pearly gates.”
The third man started searching desperately through his pockets and finally pulled out a pair of women's panties.
St. Peter looked at the man with a raised eyebrow and asked, “And just what do those symbolize?”The man replied, “These are Carols.”

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