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Mortgage Market in Review – November 3, 2014

Market Comment

Mortgage bond prices finished the week lower which pushed rates a little higher. Rates were neutral the beginning of the week tied to continued economic woes in the euro zone. Unfortunately, stronger than expected Consumer Confidence data Tuesday resulted in rate increases. Consumer confidence came in at 94.5 versus the 87 mark. Rates remained under pressure Wednesday in response to the Fed meeting. The Fed kept rates unchanged, ended their bond buying program this month, and said the data would dictate the future. Mixed data the remainder of the week resulted in some volatility but within a narrow range. Weekly jobless claims came in at 287k versus the expected 283k. Q3 Advance GDP rose 3.5% versus the expected 3% increase. Mortgage interest rates finished the week worse by approximately 1/8 to 1/4 of a discount point.

LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
ISM Index Monday, Nov. 3,
10:00 am, et
57.2 Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
Trade Data Tuesday, Nov. 4,
8:30 am, et
$40.8b deficit Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
Factory Orders Tuesday, Nov. 4,
10:00 am, et
Up 0.7% Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
ADP Employment Wednesday, Nov. 5,
8:30 am, et
222k Important. An indication of employment. Weakness may bring lower rates.
Weekly Jobless Claims Thursday, Nov. 6,
8:30 am, et
278k Important. An indication of employment. Higher claims may result in lower rates.
Preliminary Q3 Productivity Thursday, Nov. 6,
8:30 am, et
Up 0.8% Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
Employment Friday, Nov. 7,
8:30 am, et
5.9%,
Payrolls +252k
Very important. An increase in unemployment or weakness in payrolls may bring 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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