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Mortgage Market in Review – July 2, 2018

   

Market Comment

Mortgage bond prices finished the week higher which put downward pressure on rates.  Trade was quiet with a positive bias as the data released was near expectations and the Treasury auctions were OK.  New home sales were 689K versus the expected 667K.  Housing prices continued to rise helped by a shortage of inventory.  According to the Case-Shiller 20-city index, prices rose 6.6% in the last year.  Orders for durable goods, items that last more than three years, fell 0.3%, better than the 1% decline traders were expecting.  Weekly jobless claims were 227K. Analysts looked for a lower reading of 220K.  We ended the week better by 1/8 to 1/4 of a discount point.


LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
ISM Index Monday, July 2,
10:00 am, et
59.1 Important.  A measure of manufacturer sentiment.  Weakness may lead to lower mortgage rates.
Factory Orders Tuesday, July 3,
10:00 am, et
Up 0.2% Important.  A measure of manufacturing sector strength.  Weakness may lead to lower rates.
ADP Employment Thursday, July 5,
8:30 am, et
182K Important.  An indication of employment.  Weakness may bring lower rates.
Weekly Jobless Claims Thursday, July 5,
8:30 am, et
216K Important.  An indication of employment.   Higher claims may result in lower rates.
Fed Minutes Thursday, July 5,
2:00 pm, et
None Important.  Details of the last Fed meeting will be thoroughly analyzed.
Employment Friday, July 6,
8:30 am, et
3.8%,
Payrolls +225K
Very important.  An increase in unemployment or weakness in payrolls may bring lower rates.
Trade Data Friday, July 6,
8:30 am, et
$45.8B deficit Important.  Affects the value of the dollar.  A falling deficit may strengthen the dollar and lead to lower 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.

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