MARKET COMMENT
Mortgage bond prices were positive for the week despite some significant volatility. We started on a neutral note Monday amid thin trading conditions and a shortened trading day. Stock weakness resulted in a lot of flight to safety of US debt. The DOW was down 660 points Thursday alone. The data was mixed. ADP employment rose 271K versus the expected 170K increase. This was not rate friendly and looked to set us off on the wrong foot. Weekly jobless claims were a higher than expected 231K. Analysts expected a reading of 220K. Unemployment was 3.9% versus an expected reading of 3.7%. Payrolls rose 312K which was a big surprise. Analysts expected an increase of 180K and we saw MBS selling pressure as a result. Mortgage interest rates still finished the week better by approximately 1/8 of a discount point.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| Factory Orders | Monday, Jan. 7 10:00 am, et | Down 0.1% | Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
| Trade Data | Tuesday, Jan. 8, 8:30 am, et | $55B deficit | Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. |
| 3-year Treasury Note Auction | Tuesday, Jan. 8, 1:15 pm, et | None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| 10-year Treasury Note Auction | Wednesday, Jan. 9, 1:15 pm, et | None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Fed Minutes | Wednesday, Jan. 9, 2:00 pm, et | None | Important. Details of the last Fed meeting will be thoroughly analyzed. |
| Weekly Jobless Claims | Thursday, Jan. 10, 8:30 am, et | 212K | Important. An indication of employment. Higher claims may result in lower rates. |
| 30-year Treasury Bond Auction | Thursday, Jan. 10, 1:15 pm, et | None | Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates. |
| Consumer Price Index | Friday, Jan. 11, 8:30 am, et | Up 0.2%, Core up 0.1% | Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates. |
THE FED LOOKS TO DATA
The Fed made it clear that future Fed policy and specifically additional rate increases will be implemented as needed in response to future data releases. While there are many market forces that drive mortgage interest rates the Fed remains a primary agent for now. If the Fed is watching the economic data it would be wise to follow their lead.
Economic data often drives trading sentiment in the short-term. A positive or negative release can cause mortgage interest rates to surge higher or lower in a very short time span. Very important releases such as the employment report can set the tone for trading for the month. An absence of data often results in very calm trading. Data is difficult to predict. Estimates often vary wildly from economist to economist and major revisions are all too common. However, it isn’t difficult to know when an event that can cause market volatility is scheduled. This is crucial in making wise float and lock decisions.
