Market
Comment
Mortgage bond prices rose last week helping mortgage
interest rates improve. Trading was positive the
beginning of the week. Unfortunately stock strength and
strong data erased a significant portion of the
improvements. Stronger than expected personal income,
outlays, consumer sentiment, and factory orders data
last Friday pressured mortgage bonds.
For
the week, interest rates on government and conventional
loans improved by about 1/8 of a discount point.
The
employment report Friday will be the most important
event this week. ISM Index, Fed "Beige Book", and
revised productivity data will also be important.
LOOKING AHEAD
|
Economic
Indicator |
Release
Date & Time |
Consensus
Estimate |
Analysis |
|
Construction Spending |
Tuesday, Sept. 4,
10:00 am, et |
Down 0.1% |
Low importance. An indication of economic
strength. A significant decrease may lead to
lower rates. |
|
ISM Index |
Tuesday, Sept. 4,
10:00 am, et |
53.0
|
Important. A measure of manufacturer sentiment.
A larger decline may lead to lower mortgage
rates. |
|
Fed "Beige Book" |
Wednesday, Sept. 5,
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 Q2 Productivity |
Thursday, Sept. 6,
8:30 am, et |
Up 2.3% |
Important. A measure of output per hour.
Weakness may lead to lower mortgage rates.
|
|
Employment |
Friday, Sept. 7,
8:30 am, et |
Unemp. @ 4.6%,
Payrolls +120k |
Very important. An increase in unemployment or
weakness in payrolls may bring lower rates.
|
Fed "Beige Book"
The Fed "Beige Book" is a summary of economic conditions
from each of the 12 Federal Reserve regional districts.
The release takes place eight times a year approximately
two weeks ahead of each of the Federal Open Market
Committee meetings. The report is used at the FOMC
meetings, which tends to be one of the most influential
events in the market.
Market
participants are continually attempting to determine
what FOMC interest rate policy will be ahead of the next
meeting. Any deviation from expectations usually results
in extreme short-term market volatility. The timing of
the "Beige Book" provides analysts a valuable look at
one of the many factors the FOMC considers in setting
interest rate policy. If the "Beige Book" shows signs of
inflationary pressures, the Fed may decide to raise
interest rates. However, if the report shows signs of
difficulties, the Fed may lower rates to stimulate the
economy.
Most
analysts believe the Fed will lower rates to help the
economy deal with the credit crisis. The "Beige Book"
release on Wednesday should provide market participants
with valuable insight into what the Fed will do and how
mortgage interest rates will respond in the short-term.
Be
careful ahead of the "Beige Book" release this week.
While the market has seen positive and negative days
over the past few weeks, the reality is that mortgage
interest rates are historically favorable. It is
possible for mortgage interest rates to improve if the
Fed indicates the economy is faltering and a rate
decrease is needed. However, a Fed rate reduction does
not automatically mean that mortgage interest rates will
fall. The Fed primarily affects short-term rates and
long-term rates do not always follow suit.
Be
cautious heading into the data this week in the event
the recent trend towards lower rates changes. |
