Mortgage Market in Review from Monte Hill week of 4/02/2007
Mortgage Market in Review
Week of April 2, 2007 Volume 14, Issue
Market Comment
Mortgage bond prices fell pushing rates higher last week. Trading was negative throughout most of the week with mortgage bonds gradually trading lower. Increases in oil prices associated with escalated tensions in the Middle East increased the fear of inflation. In addition, stronger than expected gross domestic product data and rising inflationary expectations in the consumer confidence report pressured bonds. For the week, interest rates on government and conventional loans rose by about 1/4 to 3/8 of a discount point.
The employment report Friday will be the most important release this week. ISM Index and factory orders data will also be important.
Looking Ahead |
Economic Indicator | Release Date and Time | Consensus Estimate | Analysis |
ISM Index | Monday, April 2, 10:00 am, et | 51.0 | Important. A measure of manufacturer sentiment. A large decline may lead to lower mortgage rates. |
Factory Orders | Wednesday, April 4, 10:00 am, et | Up 2.0% | Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
Employment | Friday, April 6, 8:30 am, et | Unemp. @ 4.6%, Payrolls +120k | Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates. |
Early Market Close | Friday, April 6, 10:30 am, et | | Important. Shortened trading week may lead to mortgage interest rate volatility. |
Consumer Credit | Friday, April 6, 3:00 pm, et | Up $5 billion | Low importance. A significantly larger than expected increase may lead to lower mortgage interest rates. |
Factory Orders
Factory orders data is a monthly report released by the US Census Bureau. The release is officially referred to as The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories, and Orders.
The manufacturing sector is a major component of the economy. Investors use the factory orders report to attempt to determine the direction of the economy in the future. Orders are generally believed to be a precursor to activity in the manufacturing sector because manufacturing typically has an order before considering an increase in production. Conversely, a decrease in orders eventually causes production to scale back; otherwise, the manufacturer accumulates inventories, which must be financed.
Total factory orders break down to approximately 55% durable and 45% non-durable. Durable goods are items such as refrigerators, cars, and aircraft. Non-durables are items such as cigarettes, candy, and soap. The report is often dismissed due to the timing of the release. Durable goods orders are typically reported a week earlier making a portion of the factory orders data “old news.” While some analysts dismiss the value of the factory orders data others point out the fact that the report provides a more complete picture than the initial durable goods release. Revisions to initial data along with non-durable figures are factored in providing a more accurate look at the condition of the manufacturing sector.
The stock market typically likes to see strong factory orders data indicating a surge in future production. On the other hand, bonds typically like weaker figures.
Despite some positive spots in the US economy, manufacturing continues to struggle. If the factory orders data shows a significant increase, stocks may rise on the data. This scenario is likely to pressure mortgage interest rates higher. However, a factory orders report showing continued weakness may help to push mortgage interest rates lower.
Monte J. Hill
John Adams Mortgage
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