MARKET COMMENT
Mortgage bond prices finished the week higher which put downward pressure on rates. Most of the improvements came as stocks got crushed. Stocks experienced some of the worst losses ever with a decrease of 1191 points in the DOW Thursday alone. This was one of the rare times when the data was completely overshadowed by news headlines. Global stock losses were in the trillions of dollars for the past 30 days. The FHFA House Price Index rose 0.6% versus the expected 0.3% increase. Consumer confidence was lower than expected at 130.7 vs 132. New home sales were a solid 764K. Analysts looked for a reading of 720K. Durable goods orders fell 0.2% vs a 1.6% decline. Core PCE inflation rose 0.1% vs the expected 0.2% increase. Revised Q4 Gross Domestic Product rose 2.1%. Analysts looked for a reading of 2.2%. Mortgage interest rates finished the week better by 3/8 of a discount point.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| Construction Spending | Monday, March 2, 10:00 am, et |
Up 0.4% | Low importance. An indication of economic strength. Significant weakness may lead to lower rates. |
| ISM Index | Monday, March 2, 10:00 am, et |
50.5 | Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates. |
| ADP Employment | Wednesday, March 4, 8:30 am, et |
192K | Important. An indication of employment. Weakness may bring lower rates. |
| Weekly Jobless Claims | Thursday, March 5, 8:30 am, et |
205K | Important. An indication of employment. Higher claims may result in lower rates. |
| Revised Q4 Productivity | Thursday, March 5, 8:30 am, et |
Up 1.4% | Important. A measure of output per hour. Improvement may lead to lower mortgage rates. |
| Factory Orders | Thursday, March 5, 10:00 am, et |
Down 0.2% | Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
| Employment | Friday, March 6, 8:30 am, et |
3.6%, Payrolls +180K |
Very important. An increase in unemployment or weakness in payrolls may bring lower rates. |
UNCERTAINTIES
Recent headlines weigh heavily on economies around the globe. The coronavirus, COVID-19, has stocks plummeting almost everywhere. Travel bans, quarantines, hospitalizations, and more have investors and consumers very concerned. Global trade has already been impacted but continued production delays have large and small companies very worried. Apple already indicated production delays will impact product availability and many small companies are beginning to lay off employees.
Mortgage-backed securities often benefit when these types of stories hit the press. Fear, real or perceived, is a strong emotion. Investors run for safety, MBS prices rise, and mortgage interest rates fall. We have seen a lot of this flight to safety buying historically. Recently US Treasuries saw more improvement than MBSs but they both experienced higher prices and lower yields last week. The uncertain part is when those defensive trading positions unwind. In those instances, mortgage rates go from a lull to wild spikes and dips from minute to minute on some trading days.
Time will tell if the recent increase in stock volatility will continue. The safe thing to do is to take advantage of mortgage interest rates when they dip to very low levels as we’ve seen lately.
