Mortgage Market Review - 5/3/10

This Morning…Monday, May 3, 2010:
Monday’s bond market has opened in negative territory following early stock strength. The stock markets are starting the week in positive ground after Greece accepted a bailout package that should help stabilize the country’s financial system. There were two reports released this morning that were relevant to mortgage rates. The first was March’s Personal Income & Outlays that showed a rise in income and an increase in spending. Both of these readings matched forecasts, minimizing its impact on mortgage rates. The second report of the day was one of the more important releases of the week. The Institute for Supply Management (ISM) posted their manufacturing index for April which was slightly lower than forecasts but an increase from the previous month. This indicates that more surveyed manufacturers felt business improved during the month than last month. That can be considered negative for bonds, but since the reading did not exceed forecasts, its impact on the markets has been minimal.

Last Week:
Trading was dominated last week by foreign influences as the Greek debt concerns spread throughout Europe. Analysts point to Spain and Portugal as additional areas of concern. Fortunately, this sent global investor funds into US Treasury bonds and mortgage-backed securities. Real GDP grew during the first quarter, consumer confidence rose in April, and weekly first-time unemployment claims fell. This was good news for our economy. Unfortunately, our debt continues to grow as does overall unemployment (hovering around 10%).

This Week:
This week shows quite a bit of news. We started today with Personal Income & Consumption (Spending) as mentioned above. Tomorrow we have Pending Home Sales, Wednesday the ISM Services number and ADP private-sector employment figures. Thursday is Initial Jobless Claims and some productivity and costs numbers. Friday is the biggest economic event with the employment report containing Non-farm Payroll, the Unemployment Rate, Hourly Earnings, etc.

EconomicIndicator
Personal Income and Outlays
Monday, May 3,8:30 am, et
Up 0.2%Up 0.6%
Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
ISM Index
Monday, May 3,10:00 am, et
59.6
Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
Factory Orders
Tuesday, May 4,10:00 am, et
Down 0.8%
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
ADP Employment
Wednesday, May 5,8:30 am, et
Jobs +20K
Important. An indication of employment. A large decrease in payrolls may bring lower rates.
Preliminary Q1 Productivity
Thursday, May 6,8:30 am, et
Up 3.1%
Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
Employment
Friday, May 7,8:30 am, et
Jobs +175KUmemp @ 9.7%
Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates.

Market Forecast:
Overall, I believe Friday will be the most important day of the week with the employment data being posted. It can easily erase the week’s accumulated gains or losses in mortgage rates if it shows any surprises. The productivity data to be released Thursday also is a major release. The middle part of the week will likely be the calmest, but I still suggest proceeding cautiously.

Some Humor:
Two doctors, a psychiatrist and a proctologist, opened an office in a small town and put up a sign reading: "Dr. Smith and Dr. Jones: Hysterias and Posteriors."
The town council was not happy with the sign, so the doctors changed it to read, "Schizoids and Hemorrhoids."
This was not acceptable either, so in an effort to satisfy the council, they changed the sign to "Catatonics and High Colonics." No go.
Next, they tried "Manic Depressives and Anal Retentives." Thumbs down again. Then came "Minds and Behinds." Still no good.
Another attempt resulted in "Lost Souls and Butt Holes." Unacceptable again!
So they tried "Analysis and Anal Cysts." Not a chance.
"Nuts and Butts?" No way.
"Freaks and Cheeks?" Still no go.
"Loons and Moons?" Forget it. A
lmost at their wit's end, the doctors finally came up with: "Dr. Smith and Dr. Jones, Odds and Ends."
Everyone loved it.

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