Mortgage Market in Review – January 5, 2015

January 5, 2015
Market Comment

Mortgage bond prices finished the week higher, which pushed rates lower. Rates were positive the first portion of the week in thin trading conditions, which surrounded the holidays. Weaker than expected consumer confidence data Tuesday morning helped rates improve. Confidence was 92.6 versus the expected 94.4. The weekly jobs report released Wednesday was mixed. Jobless claims were slightly higher than expected however continuing claims were lower than expected. Rates saw a small bump higher as a result. Trading was light Friday following the holiday. The ISM Index came in at 55.5 versus the expected 57.5 reading helping rates improve a bit more. Mortgage interest rates finished the week better by approximately 1/2 of a discount point.

LOOKING AHEAD

Economic
Indicator		 Release
Date & Time		 Consensus
Estimate
Analysis
Factory Orders Tuesday, Jan. 6,
10:00 am, et		 Up 0.1% Important.  A measure of manufacturing sector strength.  Weakness may lead to lower rates.
ADP Employment Wednesday, Jan. 7,
8:30 am, et		 242k Important.  An indication of employment.  Weakness may bring lower rates.
Trade Data Wednesday, Jan. 7,
8:30 am, et		 $41.5b deficit Important.  Affects the value of the dollar.  A falling deficit may strengthen the dollar and lead to lower rates.
Fed Minutes Wednesday, Jan. 7,
2:00 pm, et		 None Important.  Details of the last Fed meeting will be thoroughly analyzed.
Weekly Jobless Claims Thursday, Jan. 8,
8:30 am, et		 288k Important.  An indication of employment.   Higher claims may result in lower rates.
Employment Friday, Jan. 9,
8:30 am, et		 5.8%,
Payrolls +245k		 Very important.  An increase in unemployment or weakness in payrolls may bring lower rates.

Fed Looks to Data

The Fed made it clear that rate adjustments will be in response to future data releases.  While there are many market forces that drive mortgage interest rates the Fed remains the leader 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.  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.

Rates are historically very favorable. It would take an unforeseen catalyst to push rates substantially lower in the short term.  Floating in this environment is risky.  This is especially true ahead of significant economic releases.

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