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Mortgage Market in Review

   

Market Comment

Mortgage bond prices finished the week higher which pushed rates lower.  Rate movements were limited most of the week but most of the positive improvements came early in continuation of Brexit fallout the week before.  The U.S. economy grew at a 1.1% the first quarter which was as expected.  Consumer confidence was a strong 98.0 versus the expected 93.1 reading.  Personal income rose 0.2%, spending rose 0.4% and core PCE inflation rose 0.2%. That data was near expectations and did not move rates.  A slight stock recovery Wednesday erased some of the earlier MBS gains.  Rumors of the ECB expanding their QE program helped rates improve Friday.  Mortgage interest rates finished the week better by approximately 3/8 of a discount point.


LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
Factory Orders Tuesday, July 5,
10:00 am, et
Up 0.8% Important.  A measure of manufacturing sector strength.  Weakness may lead to lower rates.
Trade Data Wednesday, July 6,
8:30 am, et
$38B deficit Important.  Affects the value of the dollar.  A falling deficit may strengthen the dollar and lead to lower rates.
Fed Minutes Wednesday, July 6,
2 pm, et
None Important.  Details of the last Fed meeting will be thoroughly analyzed.
ADP Employment Thursday, July 7,
8:30 am, et
195K Important.  An indication of employment.  Weakness may bring lower rates.
Weekly Jobless Claims Thursday, July 7,
8:30 am, et
269K Important.  An indication of employment.   Higher claims may result in lower rates.
Employment Friday, July 8,
8:30 am, et
4.8%,
Payrolls +125K
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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