The Colley Team Blog

Market Comment - Week of March 29th, 2010

Mortgage bond prices fell last week pushing mortgage interest rates considerably higher. The Treasury auctions resulted in poor foreign demand for US debt instruments. Unfortunately that carried over into the mortgage backed securities market causing prices to fall and rates to rise. The data hurt us with weekly jobless claims coming in better than expected and existing home sales also beating estimates. Durable goods orders data was mixed with ex-transportation figures considerably stronger than expected. Rates rose about 5/8 of a discount point for the week.

The PCE inflation reading Monday will set the tone for trading this week. The employment report Friday will be the most important release. The bond market will close early Friday in honor of Good Friday.


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Economic Factors

Economic Indicator
Release Date Time
Consensus Estimate
Analysis

Personal Income and Outlays
Monday, March 29, 2010
Up 0.1%, Up 0.3%
Important. A measure of consumers' ability to spend. Weakness may lead to lower mortgage rates.

PCE Prices-Core
Monday, March 29, 2010
Up 0.1%
Important. An indication of inflationary pressures at the producer level. Weakness may lead to lower rates.

Consumer Confidence
Tuesday, March 30, 2010
49.0
Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates.

ADP Employment
Wednesday, March 31, 2010
Up 45k
Important. An indication of employment. Weakness in payrolls may bring lower rates.

Factory Orders
Wednesday, March 31, 2010
Up 0.5%
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.

Construction Spending
Thursday, April 1, 2010
Down 1.0%
Low importance. An indication of economic strength. A significant decrease may lead to lower rates.

ISM Index
Thursday, April 1, 2010
57.0
Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.

Employment
Friday, April 2, 2010
Unemp. @ 9.7%, Payrolls +150k
Very important. An increase in unemployment or weakness in payrolls may bring lower rates.




Personal Consumption Expenditures

The personal consumption expenditures price index is a measurement of the average increase in prices for all domestic personal consumption. The Bureau of Economic Analysis creates the report. The release is the preferred measure of inflation of the Federal Reserve. The 2000 Monetary Policy Report to the Congress indicated, "the Federal Reserve Board's semiannual monetary policy reports to Congress have described the Board's outlook for inflation in terms of the PCE. Prior to that, the inflation outlook was presented in terms of the CPI." The report went on to note "the PCE chain-type index is constructed from a formula that reflects the changing composition of spending and thereby avoids some of the upward bias associated with the fixed-weight nature of the CPI. In addition, the weights are based on a more comprehensive measure of expenditures. Finally, historical data used in the PCE price index can be revised to account for newly available information and for improvements in measurement techniques, including those that affect source data from the CPI; the result is a more consistent series over time."

Be cautious heading into this release in the event signs of inflation begin to materialize.