Princeton Capital Blog

This Week’s Market Commentary

February 28th, 2011

ben bernanke
Ben Bernanke

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.

The week’s first data comes this morning with the release of January’s Personal Income ad Outlays data, 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.

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 the manufacturing sector. If we see a weaker than expected reading, the bond market could rally.

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.

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.

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.

January’s Factory Orders will be posted late Friday morning, which will give us another measurement of manufacturing sector strength. This data is similar to last week’s Durable Goods, except this report covers orders for both durable and non-durable goods. Current forecasts are calling for an increase in new orders of approximately 2.1%. A smaller than expected rise would be good news for the bond market and could lead to an improvement in mortgage rates.

Overall, look for a fairly active week for mortgage rates. Friday is undoubtedly the biggest day of the week, but Tuesday may also bring noticeable movement in mortgage rates.

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