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Market Comment
Mortgage bond prices rose last week applying downward pressure on mortgage rates. Volatility in both the stock and bond markets remained high with broad swings occurring on a daily basis. Mortgage rates moved lower following the release of weak housing data. The improvements seen earlier in the week were reversed following a weak 5-year Treasury auction on Wednesday. The volatility seen this week is expected to continue until the future of the economy becomes clear.
Rates fell by about 3/8 of a discount point for the week.
Personal income and outlays will set the tone for trading this week. The employment report to be released on Friday will be the most important release this week. The focus lately has been on the payrolls component rather than the headline figure. If payrolls come in stronger than expected, mortgage interest rates may worsen.
LOOKING AHEAD
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Economic
Indicator
|
Release
Date & Time
|
Consensus
Estimate
|
Analysis
|
| Personal Income and Outlays |
Monday, June 28,
8:30 am, et
|
Income up 0.5%
Outlays up 0.1% |
Important. A measure of consumers' ability to spend. Weakness may lead to lower mortgage rates. |
| Consumer Confidence |
Tuesday, June 29,
10:00 am, et
|
62. |
Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates. |
| ADP Employment |
Wednesday, June 30,
8:30 am, et
|
+56K |
Important. An indication of the employment. Weakness in payrolls may bring lower rates. |
| ISM Index |
Thursday, July 1,
10:00 am, et
|
58.8 |
Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates. |
| Employment |
Friday, July 2,
8:30 am, et
|
Jobs -70K
Unemp @ 9.7% |
Very important. An increase in unemployment or weakness in payrolls may bring lower rates. |
| Factory Orders |
Friday, July 2,
10:00 am, et
|
-0.6% |
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
Employment
The employment report provides an abundance of information for almost every sector of the economy. Not only does the employment report give basic employment payroll statistics for the major working sectors, it also provides the average hourly earnings and the average workweek. Using this information provided by the Bureau of Labor Statistics (BLS) of the U.S. Department of Labor, economists estimate many other economic indicators such as industrial production, personal income, housing starts, and GDP monthly revisions. Since there is little data for economists to base their estimates on, the margin of error for the estimates tends to be high. As a result, the employment report can cause substantial market movements.
The BLS compiles data from two unrelated surveys that they conduct, the household survey and the establishment survey, in order to complete the employment report. This explains why sometimes there is an unexpected divergence between the unemployment rate and payrolls figures each month.
This week's employment data will provide valuable insight into factors the Federal Open Market Committee will use to make future rate decisions. An employment rebound may prompt the Fed to raise short-term interest rates. However, if employment remains weak, then the Fed may seriously consider keeping rates low. Floating into this report is very risky without considerable gains Thursday afternoon heading into it.
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