Mortgage Market Review - 3/1/10

This Morning…Monday, March 1, 2010:
Treasuries and mortgages started unchanged early this morning. At 8:30 Jan personal income and spending income ame in a bit lower than expected. There was no market reaction to the data in either equity markets or the bond market. At 9:30 the DJIA opened +46, the 10 yr at 9:30 unchanged and mortgage prices are flat.

Last Week:
Mortgage bond prices rebounded a bit last week pushing mortgage interest rates slightly lower. The majority of the data came in bond friendly. Weaker than expected consumer confidence data Tuesday helped mortgage interest rates improve. The Treasury auctions showed decent foreign demand. The gross domestic product price deflator component showed a smaller price increase than expected while the consumer spending component also came in weaker than expected. Existing home sales fell a surprising 7.1%, considerably weaker than the expected 1% increase. The week wasn't a good one for the economic bulls, and particularly those that think the housing markets are making a turn.

This Week:
This week is full of news, beginning with Personal Income & Consumption and Construction Spending today, along with the Institute of Supply Managers Index. Tomorrow we have a break, and then on Wednesday we have the ADP employment number (which doesn’t include government jobs), the ISM services number, and the Beige Book from the Fed. Thursday is Jobless Claims, 4th quarter Productivity, Factory Orders, and Pending Home Sales. Lastly, Friday we have the usual set of employment data, which is the biggest economic event of the week. Look for a decrease of about 20,000 jobs in February and for the unemployment rate to increase to 9.8% from 9.7%. There are also many that believe the decline in jobs will be more than that, and the unemployment rate will be closing back toward 10%. It will unquestionably be a volatile week for interest rates.

EconomicIndicator
Personal Income and Outlays
Monday, March 1,8:30 am, et
Income up 0.4%,Outlays up 0.4%
Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
PCE Price Index
Monday, March 1,8:30 am, et
Up 0.1%
Important. An indication of inflationary pressures. Decreases may lead to lower rates.
Construction Spending
Monday, March 1,10:00 am, et
Down 0.6%
Low importance. An indication of economic strength. A significant decrease may lead to lower rates.
ISM Index
Monday, March 1,10:00 am, et
58.0
Important. A measure of manufacturer sentiment. A large decline may lead to lower mortgage rates.
ADP Employment
Wednesday, March 3,8:30 am, et
-15k
Important. An indication of employment. Weakness may bring lower rates.
Fed "Beige Book"
Wednesday, March 3,2:00 pm, et
None
Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
Revised Q4 Productivity
Thursday, March 4,8:30 am, et
Up 6.2%
Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
Factory Orders
Thursday, March 4,10:00 am, et
Up 1.2%
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
Employment
Friday, March 5,8:30 am, et
Unemp. @ 9.8%,Payrolls -25k
Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates.
Consumer Credit
Friday, March 5,3:00 pm, et
Down $4.1 billion
Low importance. A significantly large increase may lead to lower mortgage interest rates.

Market Forecast:
Overall, look for a fairly active week for mortgage rates. The abundance of fundamental data this week provides a good opportunity for mortgages to improve. If the data shows weakness in the economy with little or no inflationary pressures then it is possible for mortgage bonds to rally resulting in mortgage interest rate decreases. However, if the data shows that the economy is rebounding or any significant signs of inflation, mortgage bonds may fall pushing mortgage interest rates higher.
This week brings us the release of six economic reports to be concerned with. Friday is undoubtedly the biggest day of the week and it is fairly safe to label Tuesday the least important with no relevant data scheduled for release. We may see movement in rates several days this week but Look for the week to become increasingly volatile at mid-week as players make adjustments for employment data.

Some Humor:
Two Irishmen, Patrick & Michael, were adrift in a lifeboat following a dramatic escape from a burning freighter.
While rummaging through the boat's provisions, Patrick stumbled across an old lamp. Secretly hoping that a genie would appear, he rubbed the lamp vigorously. To the amazement of Patrick, a genie came forth. This particular genie, however, stated that he could only deliver one wish, not the standard three. Without giving much thought to the matter, Patrick blurted out, "Make the entire ocean into Guinness Beer!"
The genie clapped his hands with a deafening crash, and immediately the entire sea turned into the finest brew ever sampled by mortals. Simultaneously, the genie vanished. Only the gentle lapping of Guinness on the hull broke the stillness as the two men considered their circumstances.
Michael looked disgustedly at Patrick whose wish had been granted. After a long, tension-filled moment, he spoke: "Nice going Patrick! Now we're going to have to pee in the boat!


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