Mortgage Market Review - 2/1/10

This Morning…Monday, February 1, 2010:
There has been a lot of information already this morning. Trading in the stock market was better this morning, sending mortgage rates slightly higher. At 8:30 Dec personal income, came in higher than expected, though spending came in slightly lower. The Institute for Supply Management (ISM), releases the "Report on Business" on the first working day of each month. Part of this report is the "diffusion index," which tracks the economy’s ups and downs fairly well. Jan ISM manufacturing data came in strong. The data was much better than traders were expecting and added to the selling in treasuries and mortgages. Also at 10:00 Dec construction spending, expected to be down slightly, was down hard. Markets put it on the back burner however, focusing more on the ISM report.

Last Week:
Mortgage bond prices fell last week pushing mortgage interest rates slightly higher. Most of the data early in the week was bond-friendly. Unfortunately the Fed’s reminder that their purchases of mortgage bonds would cease after the first quarter sent bond prices tumbling Wednesday afternoon. This was partially due to KC Fed president Hoenig who dissented against the use of the phrase "keeping rates low for an extended period.” He thought with the economy improving, the "extended" word was inappropriate. This was followed by stronger than expected gross domestic product, employment cost index, and PCE price data Friday morning. Bonds were helped Friday afternoon as stocks remained jittery. Interest rates rose by about 1/8 of a discount point for the week.

This Week:
The employment report Friday will be the most important event this week. Income, outlays, ISM Index, productivity, and factory orders data may also move the market. The ADP payrolls data will be carefully watched on Wednesday even though the release does not always reflect the results of the employment report. It still provides another view of the employment situation.

EconomicIndicator
Personal Income and Outlays
Monday, Feb. 1,8:30 am, et
Income up 0.3%,Outlays up 0.2%
Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
Construction Spending
Monday, Feb. 1,10:00 am, et
Down 0.3%
Low importance. An indication of economic strength. A significant decrease may lead to lower rates.
ISM Index
Monday, Feb. 1,10:00 am, et
56.7
Important. A measure of manufacturer sentiment. A large decline may lead to lower mortgage rates.
ADP Employment
Wednesday, Feb. 3,8:30 am, et
-90k
Important. A measure of employment. A large decrease in payrolls may bring lower rates.
Preliminary Q4 Productivity
Thursday, Feb. 4,8:30 am, et
Up 5.9%
Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
Factory Orders
Thursday, Feb. 4,10:00 am, et
Up 1.5%
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
Employment
Friday, Feb. 5,8:30 am, et
Unemp. @ 10%,Payrolls +20k
Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates.
Consumer Credit
Friday, Feb. 5,3:00 pm, et
Down $9.2 billion
Low importance. A significantly large increase may lead to lower mortgage interest rates.

Market Forecast:
Friday’s data is by far the most important of the week. The Labor Department will post January’s Employment data early Friday morning, giving us the U.S. unemployment rate and the number of jobs added or lost during the month among other related statistics. Analysts are expecting to see the unemployment rate remain at 10.0% and that approximately 13,000 new jobs were added to the economy. An increase in unemployment and a loss in payrolls would be great news for the bond market. However, if Friday’s report reveals stronger than expected results, we can expect to see mortgage rates move higher. In addition to the factual economic data, we also have several public speaking events about the U.S. budget, monetary policy and other related topics. They are sprinkled throughout the week and can cause a market reaction if anything said surprises market participants.
Overall, I believe that market volatility this week will likely be up a little with interday swings that will keep markets in check until the employment data on Friday morning.

Some Humor:
A rancher got in his pickup and drove to a neighboring ranch and knocked at the door. A young boy, about 9, opened the door "Is your Dad home?" the rancher asked.
"No sir, he isn't," the boy replied. "He went into town."
"Well," said the rancher, "Is your Mother here?"
"No sir, she's not here either. She went into town with Dad."
"How about your brother, Howard? Is he here?"
"No sir, He went with Mom and Dad."
The rancher stood there for a few minutes, shifting from one foot to the other and mumbling to himself.
"Is there anything I can do for you?" the boy asked politely. "I know where all the tools are, if you want to borrow one. Or maybe I could take a message for Dad."
"Well," said the rancher uncomfortably, "I really wanted to talk to your Dad. It's about your brother Howard getting my daughter, Suzie, pregnant."'
The boy considered for a moment. "You would have to talk to Pa about that," he finally conceded. "If it helps you any, I know that Pa charges $500 for the bull and $50 for the hog, but I really don't know how much he gets for Howard."

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