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Mortgage Market in Review – June 6, 2016

Market Comment

Mortgage bond prices finished the week higher which pushed rates lower.  Rates started slightly worse Tuesday tied to comments from a Fed official regarding future Fed rate hikes.  St Louis Fed President Bullard said, “My sense is that markets are well-prepared for a possible rate increase globally, and that this is not too surprising given our liftoff from December and the policy of the committee which has been to try to normalize rates slowly and gradually over time.”  The Institute for Supply Management, which monitors conditions in manufacturing, was stronger than expected.  ADP payrolls printed at 173K which was lower than the expected 180K.  Unemployment stood at 4.7% while payrolls rose 38K.  Traders expected a 180K increase in the payrolls component.  Mortgage interest rates finished the week better by approximately 1/4 of a discount point.


LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
Revised Q1 Productivity Tuesday, June 7,
8:30 am, et
Up 0.1% Important.  A measure of output per hour.  Improvement may lead to lower mortgage rates.
3-year Treasury Note Auction Tuesday, June 7,
1:15 pm, et
None Important.  Notes will be auctioned.  Strong demand may lead to lower mortgage rates.
Consumer Credit Tuesday, June 7,
3:00 pm, et
$24B Low importance.  A significantly large increase may lead to lower mortgage interest rates.
10-year Treasury Note Auction Wednesday, June 8,
1:15 pm, et
None Important.  Notes will be auctioned.  Strong demand may lead to lower mortgage rates.
Weekly Jobless Claims Thursday, June 9,
8:30 am, et
272K Important.  An indication of employment.   Higher claims may result in lower rates.
30-year Treasury Bond Auction Thursday, June 9,
1:15 pm, et
None Important.  Notes will be auctioned.  Strong demand may lead to lower mortgage rates.
U of Michigan Consumer Sentiment Friday, June 10,
10:00 am, et
93.5 Important.  An indication of consumers’ willingness to spend.  Weakness may lead to lower mortgage rates.

China

China is an important driver in the global recovery following the financial crisis that started in 2008.  Their economy continues to expand whiles other countries falter.  China is a major purchaser of commodities, especially copper and iron ore that are used in industrial production.   That buying helps many developing countries weather the financial crisis.  In addition to commodities, China buys US Treasury debt and currently holds in excess of $1.2T.

 

China’s GDP growth in 2010 was 10.4%.  That number fell in 2011 to 9.3%.  Growth rates in 2012 and 2013 were 7.7%.  The rate in 2014 was 7.4% and 6.9% in 2015.  The declining pattern has many investors concerned.  In addition, there are always lingering questions regarding the accuracy of the economic figures.  Some analysts have suspicions that the data could be influenced by the government rather than accurately reflecting current conditions.

 

The Chinese economic growth rate is still sharply higher than most other large economies.  However, the fear that growth will continue to slow has caused concern.  China is a major trading partner with many economies.  A dramatic slowdown in growth, or worse, a housing or credit bust would be felt around the world.

 


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