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Market Comment

posted Oct 31, 2011, 7:41 AM by Massey Kouhssari

Week of October 31, 2011

Volume 18, Issue 44

Mortgage bond prices ended last week lower, which pushed mortgage interest rates considerably higher.  Stock strength Thursday along with advancements in the Eurozone battle to shore the debt crisis resulted in a terrible week for mortgage interest rates.  Stocks remained volatile with 100 plus point swings from day to day but a strong 340-point surge in the DOW Thursday resulted in rate increases of 3/4 of a discount point on that day alone.  Mortgage interest rates rose by almost a full discount point for the week. The Fed results Wednesday afternoon will be the most important event this week.  The employment report Friday will be the most significant data release for the month. 

 

Looking Ahead

 

Economic

Indicator

Release

Date and Time

Consensus

Estimate

 

Analysis

ISM Index

Tuesday, Nov. 1,
10:00 am, et

51.4

Important.  A measure of manufacturer sentiment.  Weakness may lead to lower mortgage rates.

Construction Spending

Tuesday, Nov. 1,
10:00 am, et

Up 0.8%

Low importance.  An indication of economic strength.  Significant weakness may lead to lower rates.

ADP Employment

Wednesday, Nov. 2,

8:30 am, et

85k

Important.  An indication of employment.  Weakness may bring lower rates.

Fed Meeting Adjourns

Wednesday, Nov. 2,

2:15 pm, et

No rate changes

Important.  Few expect the Fed to change rates, but some volatility may surround the adjournment of this meeting.

Weekly Jobless Claims

Thursday, Nov. 3,

8:30 am, et

403k

Important.  An indication of employment.   Higher claims may result in lower rates.

Preliminary Q3 Productivity

Thursday, Nov. 3,

8:30 am, et

Up 0.1%

Important.  A measure of output per hour.  Improvement may lead to lower mortgage rates.

Factory Orders

Thursday, Nov. 3,

10:00 am, et

Up 0.1%

Important.  A measure of manufacturing sector strength.  Weakness may lead to lower rates.

Employment

Friday, Nov. 4,

8:30 am, et

9.1%,

Payrolls +95k

Very important.  An increase in unemployment or weakness in payrolls may bring lower rates.

 

Stocks and Bonds Remain Volatile

 

Last week, mortgage interest rates rose sharply following the relatively poor bid 7-year Treasury note auction.  As the US economy moves along, the demand for the lower yielding government-backed debt securities has whipsawed considerably.  One day we see a flight to quality influx of investor funds, which drive prices up and rates down.  The next day the inverse occurs. The US stock market was on a roar the latter portion of the week at the expense of demand for mortgage-backed securities.  As the stock market gained strength, investors sought higher returns by moving their money out of the bond market and into the higher yielding stock market.  The whipsaw trading environment is likely to continue.  A cautious approach is necessary to protect against extreme short-term market volatility resulting in increased interest rates considering the improbability of accurately determining how the market will react on a short-term day-to-day trading basis. Taking advantage of the historically favorable interest rates at their current levels makes sense in this environment.  We have seen in the last few weeks alone that lower rates are not a given.

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