New Market News

This week will be very important for mortgage rates despite the fact that it is a holiday shortened week. There are four relevant factual economic reports scheduled for release along with the minutes from the last FOMC meeting. This means that we may see fairly significant changes to rates more than one day this week.
Today brings us the release of November's Existing Home Sales report, which comes from the National Association of Realtors. It gives us a measurement of housing sector strength and mortgage credit demand, but is not considered to be of high importance to bonds or mortgage rates. However, after the surprisingly large drop in November's New Home Sales report, we could see this data also influence mortgage rates if it shows similar results. The financial markets will close early today and remain closed Tuesday in observance of the New Year's Day holiday. They will reopen Wednesday morning with the release of the Institute for Supply Management (ISM) manufacturing index. This highly important index measures manufacturer sentiment. A reading above 50 means that more surveyed manufacturing executives felt that business improved during the month than those who felt it had worsened. Analysts are currently expecting to see a 50.5 reading in this month's release, meaning that sentiment fell slightly from November's 50.8. A smaller reading will be good news for the bond market and mortgage shoppers while a higher than expected reading could lead to higher mortgage rates Wednesday morning.Also Wednesday will be the release of the minutes from the last FOMC meeting. This will give market participants insight to the Fed's thinking and concerns regarding inflation and monetary policy. It may also help form opinions of the Fed's future moves toward interest rates. It is one of those pieces of information that may cause a great deal of volatility in the markets or be a non-factor, depending on what the minutes show. They will be released at 2:00 PM ET, so they shouldn't affect the markets or mortgage rates until afternoon hours. The Commerce Department will post November's Factory Orders data late Thursday morning, giving us an important measurement of manufacturing sector strength. This report is similar to the Durable Goods Orders release that was posted late last month, except this report includes orders for both durable and non-durable goods. Durable goods are items that are expected to last three or more years such as electronics and autos. Examples of non-durable goods are food and clothing. Analysts are expecting to see an increase of 1.0% in new orders. This report generally does not have a huge impact on the bond market or mortgage rates, but it can influence bond trading enough to create a small change in rates.The final report of the week comes Friday morning when the Labor Department will post December's employment figures. The Employment report is considered to be one of the most important monthly releases we see. It gives us the national unemployment rate, the number of jobs added or lost during the month and average hourly earnings, which is a key measure of wage inflation. Rising unemployment, a smaller than expected increase in new payrolls and a small increase or even a decrease in earnings would be good news for the bond market. Current forecasts call for a 0.1% increase in the unemployment rate, pushing it to 4.8%. Analysts are expecting to see an increase in new payrolls in the neighborhood of 70,000 with earnings rising 0.3%. If we see much fewer than 70,000 new jobs, we should see mortgage rates drop considerably Friday. However, stronger than expected readings will likely push mortgage rates higher.Overall, the key data of the week will be Wednesday's ISM index and Friday's Employment report, which could set the tone for the bond market and mortgage pricing for the next few weeks. If they show weaker than expected results, mortgage rates should move lower for the week.

It was a Fed day afternoon yersterday- now when you know what happened, see the thoughts before it happened..

It's a Fed day afternoon. And both the stock and bond markets will be reacting to the words and actions of the Fed at 2:15pm ET. Let's break down the important questions - Will it be a half or quarter point cut? And what will the Fed say about inflation?
Everyone seems to have an opinion. Some are saying the Fed should not hike because of inflationary fears and Dollar weakness. The weakness in the Dollar is assumed to be inflationary because it will cost more to buy imports.
Some say the the Fed is already late and needs to cut by 50bp to avoid a recession. Jobs are weak, inflation is tame, housing and mortgages are performing poorly.
Others, like us, think that we will get a 25bp cut - the first cut in four years. Additionally, the Fed will cite inflation as a concern but should acknowledge that it is presently contained. We see this as the best balance to slowly help the economy without being an inflation threat. The Fed should have a green light to cut because their favored inflation measure, The Personal Consumption Expenditure Index (PCE) is under 2%. The result should be that stock traders will be disappointed, as they want a 50bp cut. Bond traders would rather see no cut to protect inflation, but will live with the 25bp.
Then there is good old Alan Greenspan. Appearing to have camera withdrawal, Mr. G is soaking up any media opportunity to pump his new book. His comments undermine the excellent job that Ben Bernanke has done. In contrast to Greenspan, Bernanke has been correctly patient and waited for the previous hikes to bring inflation down to the Fed's target zone. It would have been likely that Greenspan would have hiked much more aggressively, sending the country into a nasty recession, with Greenspan's only answer being another series of panic cuts, which would cause another bubble.
In the last bit of inflation news before the Fed meets to decide monetary policy, the Producer Price Index (PPI) “fell off a cliff” with a reading of -1.4% in August. Lower food (-0.2%) and energy (-6.6%) prices during the month led the unexpected decline in the Index. After excluding volatile food and energy prices, however, the Core Producer Price Index rose to a greater than expected 0.2% on higher drug and auto prices. Economists were predicting the PPI to fall to -0.3% and the Core PPI to rise by 0.1%. Overall, the PPI data is favorable.
Technically, bonds remain in a holding pattern trending above key support provided by the 200-day MA at $100.12