MIG Market Watch, August 3rd, 2020
Posted by : Admin
MARKET COMMENT
Mortgage bond prices finished the week slightly higher which put downward pressure on rates. The Fed dominated trading with continued billion-dollar MBS purchases daily. Most of the changes were within a very tight range which supported their goal of market stability. The data was mixed with some solid figures and some dismal results. Durable goods orders rose 7.3% vs the expected 6.6% increase. Consumer confidence was 92.6 vs the expected 95. Weekly jobless claims were 1.434M vs the expected 1.44M. Q2 GDP fell 32.9% vs the expected 34% decline. Personal income fell 1.1% vs the expected 0.9% decline. Spending rose 5.6% vs 5.9%. Core PCE prices rose 0.2% as expected. Employment cost index rose 0.5% vs the expected 0.6% increase. Consumer sentiment was 72.5 vs 73. Mortgage interest rates finished the week better by approximately 1/8 to 1/4 of a discount point.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| Construction Spending | Monday, Aug. 3, 10:00 am, et |
Up 1.3% | Low importance. An indication of economic strength. Significant weakness may lead to lower rates. |
| Factory Orders | Tuesday, Aug. 4, 10:00 am, et |
Up 5.0% | Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
| ADP Employment | Wednesday, Aug. 5, 8:30 am, et |
1.25M | Important. An indication of employment. Weakness may bring lower rates. |
| Trade Data | Wednesday, Aug. 5, 8:30 am, et |
$50.3B deficit | Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. |
| Weekly Jobless Claims | Thursday, Aug. 6, 8:30 am, et |
1.4M | Important. An indication of employment. Higher claims may result in lower rates. |
| Employment | Friday, Aug. 7, 8:30 am, et |
10.7%, Payrolls +1.3M |
Very important. An increase in unemployment or weakness in payrolls may bring lower rates. |
| Consumer Credit | Friday, Aug. 7, 3:00 pm, et |
Down $9B | Low importance. A significantly large increase may lead to lower mortgage interest rates. |
CONSUMER CREDIT
Inflation is typically the most important focus for the mortgage interest rate market. A lot of increases in interest rates come following stronger stocks. As stocks struggle, we often see rates improve. In addition, mortgage bonds often benefit from global economic uncertainty as investors search for safe havens amid economic concerns in the euro zone. This flight to quality buying of mortgage bonds helps push prices higher and mortgage interest rates lower.
The level of interest rates reflects the balance between the supply of money from investors and the demand for money by borrowers. Rising inflationary expectations and uncertainty about the performance of the bonds cause investors to require higher rates of return on investments. This compensates for the erosion of the principal that eventually is returned to them or the risk of non-performance. Regardless of inflation levels, rising economic activity can increase the demand for investors’ funds, and thereby lead to higher interest rates. Investors pulling money out of bonds and into stocks could pressure mortgage rates. The demand for money diminishes as the economy struggles. The Fed lowers interest rates as an incentive to businesses and consumers to increase their borrowings. The Fed hopes manufacturers will increase their investments in plants, equipment and inventories and that consumers will push housing construction along with consumer spending and with that, consumer debt.
