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Mortgage Rates (2/247/2011- The Week Ahead)

March 2nd, 2011 7:16 AM by Lehel S.

PLEASE NOTE: This is Sunday’s Weekly Report. Due to a technical glitch from a software update done over the weekend, last night’s weekly report did not reach you. Monday’s daily report will follow shortly. We apologize for any inconvenience this delay may have caused. 

This week brings us the release of six economic reports to be concerned with in addition to some very important testimony from Fed Chairman Bernanke. Two of the reports are considered to be very important, but nearly all of the week's releases have the potential to affect mortgage rates. With relevant reports being posted each day, we will likely see a fairly active week in mortgage rates.

The week's first data comes tomorrow morning with the release of January's Personal Income ad Outlays data at 8:30 AM ET, which gives us an indication of consumer ability to spend and current spending habits. Current forecasts call for an increase in income of 0.3% while spending is expected to rise 0.4%. A larger than expected increase in spending would be bad news for the bond market and could drive mortgage rates higher because it would mean consumers were spending more than thought. Since consumer spending makes up two-thirds of the U.S. economy, the bond market does better when spending is slowing. Good news would be a smaller than expected increase, or better yet, a decline in spending. 

The Institute for Supply Management (ISM) will release their manufacturing index for February late Tuesday morning. This index measures manufacturer sentiment and can have a pretty large impact on the financial and mortgage markets if it varies from forecasts. It is expected to show a decline from January's 60.8 to 60.5 this month. This is important because a reading above 50.0 means more surveyed manufacturers felt business improved during the month than those who felt it had worsened, meaning likely growth in t he manufacturing sector. If we see a weaker than expected reading, the bond market could rally. But, a higher than forecasted reading could lead to major selling in bonds, causing mortgage rates to rise Tuesday morning.

Fed Chairman Bernanke will deliver the Fed's semi-annual testimony on the status of the economy late Tuesday and Wednesday mornings. He will be speaking to the Senate Banking Committee Tuesday and the House Financial Services Committee Wednesday. Market participants will watch his words very closely. He is required to deliver this testimony twice a year, which is considered to be of extreme importance to the financial markets. We almost always see the markets move as a result of what he says during this testimony. Look for him to address the unemployment and housing sectors specifically and their impact on the overall economic recovery. His testimony begins at 10:00 AM ET with a prepared statement then is followed by Q & A with committee members. I am expecting to see the markets fluctuate during this session, possibly affecting mortgage rates also. 

There are no important government reports scheduled for release Wednesday morning, but there are a couple of private-sector employment-related releases due during early morning hours that may influence bond trading. However, I don’t suspect they will change mortgage rates unless they show a significant improvement or weakening in their sectors.

The Fed Beige Book is the next report scheduled for release and it will be posted Wednesday afternoon. This report details economic activity throughout the country by region. The Fed relies heavily on this data during their FOMC meetings, so look for a potential reaction during afternoon trading Wednesday. It probably will not cause a major sell off in the stock or bond markets, but could cause enough movement in bond prices to possibly improve or worsen mortgage rates slightly if it reveals any significant surprises.

Thursday’s only monthly or quarterly data is the revised Productivity index for the 4th Quarter of last year. The preliminary reading posted last month showed an annual rate of 2.6% increase in worker output. Analysts are expecting to see a 0.4% downward revision to the initial reading. Employee productivity is watched fairy closely because a higher level of output per hour is believed to mean that the economy can expand without inflation concerns. 

The biggest news of the week comes Friday morning when one of the single most important monthly reports we see will be posted. The Labor Department will release February's Employment report at 8:30 AM ET Friday. Some of the important portions of the report will give us the unemployment rate, number of new jobs added or lost and the average hourly earnings reading. The best combination for the bond market and mortgage rates would be an increase in the unemployment rate, a large drop in payrolls and little or no increase in earnings. Current forecasts are calling for 0.1% increase in the unemployment rate to 9.1% and approximately 180,000 jobs added during the month. Weaker than expected readings would be great news for the bond market and should lead to lower mortgage rates Friday.
Posted in:General
Posted by Lehel S. on March 2nd, 2011 7:16 AM



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