MIG Market Watch June 8, 2015

Market Comment

Mortgage bond prices finished the week sharply lower, which pushed mortgage interest rates higher. The Institute for Supply Management (ISM), a read on manufacturing strength, printed at 52.8. Analysts expected a reading of 51.9. That data was stronger than expected and not rate friendly. The ADP payroll report showed the economy added 201K private sector jobs in May versus the expected 215K. This was rate friendly but we failed to get a positive bounce from the release. Weekly jobless claims printed at 276K and continuing claims, a summation of all receiving benefits, at 2,196K. Economists’ expectations were for claims to print at 280K and continuing claims to be at 2,215K. The stronger than expected employment report Friday morning added to the rate increases. Mortgage interest rates finished the week worse by over a full discount point.

Looking Ahead

Economic Indicator	Release Date & Time	Consensus Estimate	Analysis
3-year Treasury Note Auction	Tuesday, June 9, 1:15 pm, et	None	Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
10-year Treasury Note Auction	Wednesday, June 10, 1:15 pm, et	None	Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Weekly Jobless Claims	Thursday, June 11, 8:30 am, et	275K	Important. An indication of employment. Higher claims may result in lower rates.
Retail Sales	Thursday, June 11, 8:30 am, et	Up 0.3%	Important. A measure of consumer demand. Weakness may lead to lower mortgage rates.
30-year Treasury Bond Auction	Thursday, June 11, 1:15 pm, et	None	Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates.
Producer Price Index	Friday, June 12, 8:30 am, et	Up 0.1%, Core up 0.2%	Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates.
U of Michigan Consumer Sentiment	Friday, June 12, 10:00 am, et	90.5	Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

 

Strong Employment

Good news for the economy is often bad for mortgage interest rates as we saw last week. Stronger than expected employment data from the Bureau of Labor Statistics (BLS) provided evidence that the economy continued to recover in May.

Unemployment came in at 5.5%, which was little changed since as far back as February. However, non-farm payrolls rose 280,000 versus the expected 225,000 increase. This was not rate friendly. The average increase was 251,000 over the prior 12 months. The BLS indicated, “job gains occurred in professional and business services, leisure and hospitality, and health care. Employment in mining continued to decline.”

Remember, the Federal Reserve was very clear about data dictating future rate increases. The employment report is usually the most important economic release each month. This report likely set the tone for trading this month. There are no guarantees rates will rise or fall but the current trend is toward higher rates. As cautioned last week, take advantage of rates at lower levels to avoid future interest rate uncertainty.