MIG Market Watch, February 5th, 2024
Market Comment

Mortgage bond prices finished the week near unchanged which left rates flat. We saw larger swings tied to economic releases. Rates improved mid-week in response to the weaker than expected ADP employment data and a tame employment inflation reading. ADP came in at 107K vs 145K. Employment cost index rose 0.9% vs 1%. The stronger than expected employment report Friday erased the earlier improvements. Unemployment came in at 3.7% vs 3.8%. Non-farm Payrolls rose 353K vs the expected 180K increase. Weekly jobless claims were 224K vs 212K. ISM Index was 49.1 vs 47. The Fed left rates unchanged. Mortgage interest rates finished the week with discount points near unchanged.

Looking Ahead
Economic Indicator Release Date & Time Consensus Estimate Analysis
3-year Treasury Note Auction Tuesday, Feb. 6,
1:15 pm, et
None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Trade Data Wednesday, Feb. 7,
8:30 am, et
$62.2B deficit Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
10-year Treasury Note Auction Wednesday, Feb. 7,
1:15 pm, et
None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Weekly Jobless Claims Thursday, Feb. 8,
8:30 am, et
215K Important. An indication of employment. Higher claims may result in lower rates.
30-year Treasury Bond Auction Thursday, Feb. 8,
1:15 pm, et
None Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates.

Trade Data

In the distant past the US economy tended to be viewed as relatively unaffected by economic activity in other countries. However, increased trades with other countries and an increased reliance on foreign purchases of US debt have generated a market awareness of trade-related issues. The exchange rate of the dollar and foreign trade flows are interrelated. One must buy dollars to purchase US exports, and sell dollars to buy imports. Likewise, foreign investment in US debt requires the purchase of US dollars, and is thus affected by exchange rates.

Each month the Commerce Department gathers an enormous amount of detailed data on exports and imports. The data is broken between goods and services trade. The overall trade balance is the dollar difference between US exports and imports on a seasonally adjusted basis. The report also highlights trade flows between the US and various partners. Since the mid-1970’s, US imports of consumer and capital goods have exceeded exports, so a merchandise trade deficit has existed. The US has always maintained a service trade surplus, and because this surplus is not enough to offset the merchandise trade deficit, a net export deficit has resulted.

Due to the overwhelming amount of data considered, trade is difficult to forecast, and can present surprises. For a variety of reasons, the financial markets will often be unaffected by surprises in trade data. However, the data still has the ability to cause mortgage interest rate volatility.

Be cautious heading into economic releases. The Fed is clear that data will dictate their future course of action. Mortgage rates have been choppy surrounding data releases. Now is a great time to take advantage of the current levels.