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Mortgage Market in Review – May 5, 2015

Market Comment

Mortgage bond prices finished the week lower which pushed mortgage interest rates sharply higher. Rates were neutral Monday morning but pushed higher midweek despite rate friendly data. Consumer Confidence came in at 95.2 versus the expected 102.2 mark. Advance Q1 GDP rose 0.2% versus the expected 1.0% increase. The Fed kept rates unchanged and indicated economic risks were balanced. Mixed data Thursday did little to stem the earlier losses. Weekly jobless claims were 262K versus the expected 290K which was not rate friendly. Employment Cost Index rose 0.7% versus the expected 0.6% which was another piece of unfriendly rate data. PCE Core inflation rose 0.1% versus the expected 0.2% increase. Mortgage interest rates finished the week worse by approximately 3/4 of a discount point.


Date & Time

Factory Orders Monday, May 4,
10:00 am, et
Up 0.1% Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
Trade Data Tuesday, May 5,
8:30 am, et
$36b deficit Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
ADP Employment Wednesday, May 6,
8:30 am, et
198K Important. An indication of employment. Weakness may bring lower rates.
Preliminary Q1 Productivity Wednesday, May 6,
8:30 am, et
Up 0.2% Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
Weekly Jobless Claims Thursday, May 7,
8:30 am, et
272K Important. An indication of employment. Higher claims may result in lower rates.
Consumer Credit Thursday, May 7,
10:00 am, et
$12.8B Low importance. A significantly large increase may lead to lower mortgage interest rates.
Employment Friday, May 8,
8:30 am, et
Payrolls +165K
Very important. An increase in unemployment or weakness in payrolls may bring lower rates.

Trade Data

In the distant past the US economy tended to be viewed as relatively unaffected by economic activity in other countries. However, increased trades with other countries and an increased reliance on foreign purchases of US debt have generated a market awareness of trade-related issues. The exchange rate of the dollar and foreign trade flows are interrelated. One must buy dollars to purchase US exports, and sell dollars to buy imports. Likewise, foreign investment in US debt requires the purchase of US dollars, and is thus affected by exchange rates.

Each month the Commerce Department gathers an enormous amount of detailed data on exports and imports. The data is broken between goods and services trade. The overall trade balance is the dollar difference between US exports and imports on a seasonally adjusted basis. The report also highlights trade flows between the US and various partners. Since the mid-1970’s, US imports of consumer and capital goods have exceeded exports, so a merchandise trade deficit has existed. The US has always maintained a service trade surplus, and because this surplus is not enough to offset the merchandise trade deficit, a net export deficit has resulted.

Due to the overwhelming amount of data considered, trade is difficult to forecast, and can present surprises. For a variety of reasons, the financial markets will often be unaffected by surprises in trade data. However, the data still has the ability to cause mortgage interest rate volatility.

Copyright 2015. All Rights Reserved. Mortgage Market Information Services, Inc. The information contained herein is believed to be accurate, however no representation or warranties are written or implied.