Sunday, August 16, 2009

Quick Weekly Update

The last four weeks have been a boom for the equity markets while the fixed income markets have taken it in the mouth. In it's wake, bond and fixed income markets have retreated to levels no seen in 6 months. While we may have been oversold, I believe the run up is overdone and has very little supporting data suggestiong our economy is headed in the right direction.

Release Date & Time
Economic Indicator
Consensus Estimate
My Analysis

Mon. Aug. 17

Tues. Aug. 18, 8:30 a.m. ET
July Housing Starts & Building Permits
Up 3.0% Up 1.7%
If the consensus estimates prove accurate, this data will likely cause interest rates fractionally higher. There is an outside chance both of these values will fall into negative territory as rising unemployment, higher interest rates, and stiffer underwriting standards combined to take a toll on demand. If so, the prospects for a near-term move to fractionally lower rates will brighten considerably.

Tues. Aug. 18, 8:30 a.m. ET
July Producer Price Index Core Rate
-0.3% vs. last +1.8% +0.1% vs. last +0.5%
The overall index probably fell as energy and food prices posted significant declines during the month. The modest increase in the core rate of the producer price index shows that inflation pressure at the wholesale level remains exceptionally benign.

Wed. Aug. 19
Thurs. Aug. 20, 8:30 a.m. ET
Initial jobless claims for the week ended 8/15 Down 3,000
Initial weekly jobless claims remain stubbornly high.

Thurs. Aug. 20, 10:00 a.m. ET
July Leading Indicators
+0.6% vs. last +0.7%
This forward looking indicator of growth in the economy is expected to show an improving outlook for growth six months down-the-line. If so, this report will likely exert some modest upward pressure on fixed income rates with the equity markets taking the benefit of this report.

Fri. Aug. 21, 10:00 a.m. ET
July Existing Home Sales
Up 2.5%
Large volumes of distress sales, improved homebuyer sentiment, and a slowly stabilizing economy are supportive factors. Should we see a solid advance for existing home sales, the equity markets should rally with a large percentage of the brunt force being applied to to the bond and fixed income markets.

Fri. Aug. 21, 10:00 a.m. ET
Fed Chairman Bernanke speaks on “Reflections on a Year of Crisis,” at a Fed conference in Jackson Hole, Wyoming Market participants will be listening intently to Mr. Bernanke’s presentation to see what he has to say about the tricky task of gradually turning off the tap of the government’s massive economic stimulus initiatives. The Fed Chairman is unlikely to add anything beyond what was included on this subject in the written statement released following last week’s Fed meeting. If this assessment is accurate, this will be a non-event in terms of its influence on the trend trajectory of mortgage rates

Mon. Aug. 24

Monday, August 3, 2009

Which Way Is Up?

Several years ago I was in Hawaii for my honeymoon. Several years before that, I lived and grew up in San Diego where I spent most of my time playing tennis and surfing. It was the latter which this story is based upon. You see, there not much surfing in Fort Worth. Not unless you consider the Trinity River in a serious thunderstorm where you might get swept east. So it had been years since I had doned a board and hit the waves. Late October starts the surfing season in Hawaii. Needless to say, my Gen X attitude thought this would have been a perfect reason to reconnect with mother earth. It didn't take me long to realize that: a) I was not in surfing shape when, b) after my first (and only) set (a larger waive) ended quickly with me summersalting down the wave and over the falls. After a lengthly time underwater I hopped up for breath only to realize there were three more sets enroute. After being underwater so for long it's best you orient yourself so as I opened up my eyes and headed to what I thought was air, I smacked straight into the sandy beachhead. I infact was swimming down not up. The moral of this story; like myself, our markets have been down for so long now, it's easy to get excited about what appears to be "the end". Our equity markets have been rallying and as American's, I believe we tend to see things as "glass half full".

While I too am excited at the thoughts of a stabilization of our economy there are several things which must happen first; none of which I am convinced is indeed occuring. First our economy must stop losing jobs. There's very little consistent evidence that this is happening. Secondly, we need housing to rebound. So much of this country's economy is derived around housing that (like auto) I've not yet seen much in the way of anything postive.

So, enjoy these levels but keep things into perspective. There's so much money on the sidelines, it has to go somewhere. With a ever-decreasing price for Treasuries, Bonds & MBS, rates are likely to head north which will slow borrowing even further. To paraphrase the Most Interesting Man Alive ( "Stay Cautious My Friends."

Economic Calendar
Economic Reading
My Analysis

Mon. Aug. 3, 10:00 a.m. ET
July Institute of Supply Mgmt.
Manufacturing Index
46.2 vs. last 44.8
Investors will pick through the components of this report – particularly the measure of employment activity in the manufacturing sector -- looking for anything that will help finetune expectations for Friday’s much more important July nonfarm payroll report. In the unlikely event the actual numbers show a surge in manufacturing employment growth and/or the aggregate index exceeds 47.0 – look for this report to put some modest pressure on interest rates. If one or both of those conditions are not met -- this report will likely have little discernable impact on the trend trajectory of mortgage rates.

Tues. Aug. 4, 8:30 a.m. ET
June Personal Income Spending
PCE index
-1.0% vs. last +1.4%
+0.3% vs. last +0.3%
+0.2% vs. last +0.1%
If, as expected, the personal consumption expenditure index component of this report (one of the Fed’s favorite measures of inflation at the consumer level) post a reading of 0.2% or higher
look for mortgage investors to register their displeasure by nudging interest rates fractionally higher.

Wed. Aug 5, 10:00 a.m. ET
June Factory Orders
+0.2% vs. last 1.2%
This stale data will likely have little, if any direct impact on anything.

Wed. Aug. 5, 10:00 a.m. ET
July Institute of Supply Mgmt.
Service Sector Index
48.2 vs. last 47.0
The fractional improvement in this index will likely have little impact on anything.

Thurs. Aug 6, 8:30 a.m. ET
Initial jobless claims for the
week ended 8/1
Up 16,000 This time around first-time jobless benefit claims are expected to post a small increase. For most investors it is still too early to conclude the worst of this recession’s employment erosion is behind us. Look for this data to have little, if any meaningful impact on the markets today.

Fri. Aug. 7, 8:30 a.m. ET
July Nonfarm Payroll
Jobless Rate
Avg. hourly earnings
9.7% vs. last 9.5%
+0.1% vs. last 0.0%
Numbers that closely approximate the consensus estimate will have little, if any impact on mortgage interest rates. In the unlikely case that the headline payroll figure does not fall as
dramatically as projected and/or if the jobless rate posts a reading less than 9.5% look for mortgage investors to react to the unsettling news by pushing interest rates higher and continue the rally in the equity markets.

Mon. Aug. 3