Market Comment
Mortgage bond prices finished the week slightly higher which kept rates relatively flat. We started positively, had some negative mid-week movements, and closed the week on a positive note. The data was mixed and many of the releases showed economic strength. The FHFA house price index rose 0.5% vs the expected 0.1% decline. Consumer confidence was 101.3 vs104. New home sales were 683K vs 630K. Durable goods orders rose 3.2% vs 0.7%. GDP rose 1.1% vs 2%. Weekly jobless claims were 230K vs 245K. Employment cost index rose 1.2% vs 1.1%. Income rose 0.3% vs 0.2%. Spending was unchanged vs the expected 0.1% decline. Core PCE inflation rose 0.3% as expected. Mortgage interest rates finished the week unchanged to better by approximately 1/8 of a discount point.
Looking Ahead
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| ISM Index | Monday, May 1, 10:00 am, et |
46.6 | Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates. |
| Factory Orders | Tuesday, May 2, 10:00 am, et |
Up 0.8% | Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
| ADP Employment | Wednesday, May 3, 8:15 am, et |
150K | Important. An indication of employment. Weakness may bring lower rates. |
| Fed Meeting Adjourns | Wednesday, May 3, 2:15 pm, et |
25 basis point hike | Important. Most expect the Fed to change rates. Volatility may surround the adjournment of this meeting. |
| Weekly Jobless Claims | Thursday, May 4, 8:30 am, et |
230K | Important. An indication of employment. Higher claims may result in lower rates. |
| Preliminary Q1 Productivity | Thursday, May 4, 8:30 am, et |
Up 1.6% | Important. A measure of output per hour. Improvement may lead to lower mortgage rates. |
| Trade Data | Thursday, May 4, 8:30 am, et |
$70B deficit | Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. |
| Employment | Friday, May 5, 8:30 am, et |
3.6%, Payrolls +156K |
Very important. An increase in unemployment or weakness in payrolls may bring lower rates. |
The Fed
The Federal Reserve meets this week and is expected to raise rates 25 basis points. Financial markets currently price in an 87% chance of a hike this week and a 67% chance of no additional changes at the June 14th meeting. Many analysts strongly believe there will be a pause after this week’s hike. The one thing the meeting could bring is additional insight into other Fed moves beside rate hikes. The Fed has been open about their desire to reduce their balance sheet. However, they still hold in excess of $2.5 trillion of mortgage-backed securities and almost $4.5 trillion of US Treasury notes and bonds. Many economists predict the Fed will announce balance sheet reductions. This means they will stop reinvesting in mortgage-backed securities. This isn’t a huge surprise as Fed officials continue to be clear in their intentions. The challenge they face is the fact that higher rates hurt the housing market and housing is a vital component of the economy. Be cautious this week as mortgage interest rates are likely to be volatile.
