Mortgage Market in Review

Market Comment 1/9/16

Mortgage bond prices finished the week higher which helped rates improve. MBS trading started on a positive note amid significant stock weakness tied to global events. Chinese manufacturing data showed weakness and the equity selling contagion spread across most of the globe. U.S. stocks were negative throughout most of the week. The DOW fell over 800 points with several days of 200+ point losses. Fed official Lacker caused some concern with remarks of 4 or more possible rate hikes this year. His comments and some of the data tempered the MBS gains. ADP employment rose 257K versus the expected 199K increase. Weekly jobless claims were near expectations at 277K. Unemployment was 5% as expected however the payrolls figure surged higher with an increase of 292K versus the expected 200K increase. Mortgage interest rates finished the week better by approximately 3/8 of a discount point.LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
Treasury Auctions Begin Tuesday, Jan. 12,
1:15 pm, et
None Important. 3Y Tuesday, 10Y Wednesday, 30Y Thursday. 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.
Weekly Jobless Claims Thursday, Jan. 14,
8:30 am, et
275K Important. An indication of employment. Higher claims may result in lower rates.
Retail Sales Friday, Jan. 15,
8:30 am, et
Up 1.4% Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
Producer Price Index Friday, Jan. 15,
8:30 am, et
Up 0.3%,
Core up 0.2%
Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates.
Industrial Production Friday, Jan. 15,
9:15 am, et
Up 0.3% Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
Capacity Utilization Friday, Jan. 15,
9:15 am, et
77.2% Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.
U of Michigan Consumer Sentiment Friday, Jan. 15,
10:00 am, et
92.6 Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

Fed Looks to Data

The Fed made it clear that future policy and specifically additional rate increases will be implemented as needed in response to future data releases. While there are many market forces that drive mortgage interest rates the Fed remains a primary agent for now. If the Fed is watching the economic data it would be wise to follow their lead.

Economic data often drives trading sentiment in the short-term. A positive or negative release can cause mortgage interest rates to surge higher or lower in a very short time span. Very important releases such as the employment report can set the tone for trading for the month. An absence of data often results in very calm trading.  Data is difficult to predict. Estimates often vary wildly from economist to economist and major revisions are all too common. However, it isn’t difficult to know when an event that can cause market volatility is scheduled. This is crucial in making wise float and lock decisions.

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