Mortgage Market Review - 1/19/10

This Morning…Tuesday, January 19, 2010:
Not much happening this morning as mortgage bonds open lower from Friday matching investor pull back pricing due to Monday’s market closure. Treasuries are trading lower as well after two days of gains. Not much in the way of economic data was released today but tomorrow brings producer inflation data and jobless claim numbers are due on Thursday. Bonds are firming a bit from earlier morning losses and the Dow is up about 80-points at the moment. Trading conditions are still thin so be prepared for continued volatility.

Last Week:
Last week was a good week for the bond and mortgage markets as bond prices rose, pushing mortgage interest rates lower. The bond market rallied nicely Tuesday following moves by China to curb growth. Oil prices fell almost immediately providing a much-needed reprieve following the recent run up in prices tied to severe cold weather across the US. The consumer price index data showed tame inflation, which also helped rates improve. Industrial Production, was up for the 6th time in a row and Capacity Utilization hit its highest level in a year.

This Week:
This week has only four business days, but there is a fair amount of economic news. We have zip today, but the Producer Price Index (PPI) on Wednesday, as well as Housing Starts & Building Permits. Thursday we have Jobless Claims, Leading Economic Indicators, and the Philly Fed Index, as well as yet again another auction announcement for the following week.

EconomicIndicator
Martin Luther King Day
Monday, Jan. 18

Important. Shortened trading week may result in volatility when trading resumes Tuesday.
Producer Price Index
Wednesday, Jan. 20,8:30 am, et
Unchanged, Core up 0.2%
Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates.
Housing Starts
Wednesday, Jan. 20,8:30 am, et
Up 1.0%
Important. A measure of housing sector strength. Weakness may lead to lower rates.
Weekly Jobless Claims
Thursday, Jan. 21,8:30 am, et
445k
Moderately Important. An indication of employment. Higher figures may result in lower rates.
Leading Economic Indicators
Thursday, Jan. 21,10:00 am, et
Up 0.5%
Important. An indication of future economic activity. Weakness may lead to lower rates.
Philadelphia Fed Survey
Thursday, Jan. 21,10:00 am, et
18.2
Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.

Market Forecast:
The inflation data Wednesday will be the most important economic release this week. Signs of stronger than expected inflation would not be good for mortgage interest rates. Direction for the bond and mortgage markets rests a lot this week on how the equity markets do; the stock market looks vulnerable to selling, if stocks decline in a correctional move the bond and mortgage markets will be the beneficiaries and continue to improve. We are not however, expecting a major decline in interest rates and see any improvement more a correctional move after the huge and swift increase in rates in Dec. As long as the outlook for economic recovery remains as solid as it is currently lower rates are highly unlikely and suggest taking advantage of any further decline in rates. The Fed is on the recovery bandwagon; based on the Fed's Beige Book, its report on the economy, the Fed remains convinced the economy will continue to recover but at a very slow pace.

Some Humor: (just slightly inappropriate)
A woman meets a man in a bar. They talk; they connect; they end up leaving together.They get back to his place, and as he shows her around his apartment. She notices that one wall of his bedroom is completely filled with soft, sweet, cuddly teddy bears. It was obvious that he had taken quite some time to lovingly arrange them and she was immediately touched by the amount of thought he had put into organizing the display. There were small bears all along the bottom shelf, medium-sized bears covering the length of the middle shelf, and huge, enormous bears running all the way along the top shelf. They share a bottle of wine and continue talking and, after awhile, she finds herself thinking, “Maybe, this guy could be the one! Maybe he could be the future father of my children?”They kiss, the passion builds, and he romantically lifts her in his arms and carries her into his bedroom where proceed from there. She is so overwhelmed that she responds with more passion, more creativity, and more heat than she has ever known.After an intense, explosive night of raw passion with this sensitive guy, they are lying there together in the afterglow. The woman rolls over, gently strokes his chest and asks coyly, “Well, how was it?”The guy gently smiles at her, looks deeply into her eyes, and says, “Help yourself to any prize ... from the middle shelf.”

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