MARKET WRAP: MBS had a great day finishing up 66bp settling at 101.25. Unfortunately, the reason for this rally is due to bad economic news. This morning’s ADP Report was poor, ISM very weak, and also a downgrade of Greek debt caused Bonds to improve throughout the trading day. As seen on the Bond Chart, prices did get halted at resistance. Stocks had a rough go today on the aforementioned news. The Dow lost 279.65 to end at 12,290.14, the Nasdaq dropped 66.11 to 2,769.19 while the S&P 500 fell 30.65 to 1,314.55. Oil fell $2.41 to $100.29/barrel. Tomorrow’s data includes Initial Claims and Productivity.
Mortgage bond prices opened slightly higher Monday morning erasing some of the losses seen Friday afternoon.
There is no economic news set for release today, therefore traders will watch stocks to help gauge interest rate direction. The equity markets open at 9:30 am ET.
This afternoon the Treasury will auction $32B in 3-year notes with results by 1:15 pm ET. The shorter-term auctions have been well received recently and this one should be no exception. However, it would not be uncommon to see rates become volatile as the auction approaches as traders prepare for the additional supply.
Mortgage bond prices are positive this morning helping to bounce back a bit from the steep selloff yesterday.
Traders will position themselves ahead of the Fed results tomorrow afternoon. Many believe the Fed will announce continued quantitative easing. Quantitative easing is tool used by the Fed to increase the supply of money by increasing the excess reserves of the banking system. The Fed basically creates money out of nothing, crediting it’s own accounts, then uses those funds to purchase financial assets usually including government bonds and mortgage backeds securities from financial institutions.
The rest of the week looks to be interesting. We have a Fed meeting, productivity data, and the employment report all in a single week. This is not your typical week with the significant data and elections all hitting us at once. There is more potential for wild market swings, as was evident this afternoon with the terrible slide in prices pushing rates higher.
The Fed meeting this week will be the most important release. While no rate change is expected the wording of the statement will be carefully scrutinized.
LOOKING AHEAD 11.01 to 11.05
Date & Time
|Personal Income and Outlays||Monday, Nov. 1,
8:30 am, et
|Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.|
|PCE Core Inflation||Monday, Nov. 1,
8:30 am, et
|Up 0.1%||Important. A measure of price increases for all domestic personal consumption. Weakness may help rates.|
|ISM Index||Monday, Nov. 1,
10:00 am, et
|53.6||Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.|
|ADP Employment||Wednesday, Nov. 3,
8:30 am, et
|25k||Important. An indication of employment. Weakness may bring lower rates.|
|Factory Orders||Wednesday, Nov. 3,
10:00 am, et
|Up 0.6%||Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.|
|Fed Meeting Adjourns||Wednesday, Nov. 3,
2:15 pm, et
|No rate change||Important. Few expect the Fed to raise rates, but some volatility may surround the adjournment of this meeting.|
|Preliminary Q3 Productivity||Thursday, Nov. 4,
8:30 am, et
|Up 0.6%||Important. A measure of output per hour. Improvement may lead to lower mortgage rates.|
|Employment||Friday, Nov. 5,
8:30 am, et
|Very important. An increase in unemployment or weakness in payrolls may bring lower rates.|
Why Data is Important
One of the easiest and most important things to do when making a decision whether to float or lock a loan is knowing what data is going to be released. Economic releases are important because they provide a snapshot of a portion of the economy. Data is even more important in that it is often the cause of market volatility. Upcoming data events are readily available and there is no excuse not knowing what data will be released in the week ahead.
While an in depth understanding of an economic event can help a person make informed decisions, it is more important to have a rudimentary understanding of when an important piece of data will be released and what basic effect that data can have on the market. Understanding the nuances of a release does very little for a person if they are blindsided by not knowing when the release will occur. Accurately predicting how each and every release will come in is impossible.
Floating into important economic data can be very risky and can expose a person to huge market swings. Keep that in mind this week, as there is an abundance of significant data heading our way. The combo of a Fed meeting and the employment report in the same week is not common.
Mortgage bond prices are near unchanged on the day, holding some slim gains from Friday afternoon. The data this morning was mixed.
We initially rallied following the 8:30 am et data. Personal income fell 0.1%, weaker than the expected 0.2% increase. Personal Outlays rose 0.2%, weaker than the expected 0.4% increase. This data was bond friendly.
The PCE Core was unchanged, weaker than the expected 0.1% increase.
Unfortunately, stronger than expected ISM Index data has us backing up from the highs of the day. ISM Index 56.9, expected 54.0, not bond friendly and counters the earlier data.
The rest of the week looks to be interesting. We have a Fed meeting, productivity data, and the employment report all in a single week. This is not very typical and has the potential to result in some wild market swings.
Mortgage bond prices closed slightly higher Friday afternoon applying downward pressure to mortgage rates.
In news released at the open, Q3 advanced gross domestic product rose 2.0%. That data was as expected. The only way we will ever recover from the Great Recession is to have GDP continue to increase. However that said, as GDP increases so will rates because an expanding economy can be inflationary.
In other news, the employment cost index rose 0.4%. Traders were expecting ECI to rise 0.5%. Lastly, consumer confidence stood at 67.7K vs. the expected 68.00 analysts had estimated. All in all the data was as expected.
Next week is going to rock and roll. Monday brings income, outlays, core PCE and IMS data, the election on Tuesday, Fed meeting Wednesday and the employment report Friday. Yikes!
9 am – Mortgage bond prices opened higher Friday morning adding to the gains seen Thursday afternoon.
In news released at the open, Q3 advanced gross domestic product rose 2.0%. That data was as expected. The only way we will ever recover from the Great Recession is to have GDP continue to increase.
In other news, the employment cost index rose 0.4%. Traders were expecting ECI to rise 0.5%.
Traders are now waiting for stocks to begin trade at 9:30 am ET and for the release of the University of Michigan consumer sentiment data set for 10:00 am ET.