Thursday, February 24, 2011

Market Commentary 02/24/11

Thursday's bond market has opened in positive territory again as this week's rally extends to a third day. The stock markets are mixed with the Dow down 25 points and the Nasdaq up 11 points. The bond market is currently up 10/32, which should improve this morning's mortgage rates by approximately .125 of a discount point.

January's Durable Goods Orders was this morning's first report. It showed a 2.7% increase in new orders for big-ticket items at U.S. factories. This matched forecasts, but if more volatile transportation related orders are excluded, January's orders were much softer than expected. However, a significant upward revision to December's orders has helped limit this data's influence on bond trading and, unfortunately, made the news neutral towards mortgage pricing.

The Labor Department announced that 391,000 new claims for unemployment benefits were filed last week. This was lower than the 410,000 that analysts were expecting to see, meaning it indicates strength in the employment sector and is negative news for the bond market and mortgage rates. Fortunately, the markets appear to be ignoring the news this morning. This is common unless there is a significant difference between forecasts and actual numbers since this release tracks only a single week's worth of new claims.

January's New Home Sales report was the third piece of data posted this morning. The Commerce Department said late this morning that sales of newly constructed homes fell 12.6% last month. That was a much bigger decline than was predicted, pointing towards housing sector weakness, which is good news for the bond market. But since this data covers only a small portion of all home sales in the U.S., its impact on mortgage rates is usually minimal.

We also have the 7-year Treasury Note auction to watch today. Results of the sale will be posted at 1:00 PM ET, so any reaction will come during afternoon hours.

Yesterday's 5-year Note sale did not go so well, meaning we don't have a lot to be optimistic about. Today's sale is more important for mortgage pricing than yesterday's was, so another weak auction could push mortgage rates slightly upward this afternoon.

The first of two revisions to the 4th Quarter GDP reading is scheduled for release early tomorrow morning. Analysts' forecasts currently call for an annual rate of growth of 3.3%, indicating that the economy was slightly stronger in the last quarter of the year than initially thought. It will be interesting to see where this figure falls and what its impact on the markets will be. Generally speaking, higher levels of activity are bad news for the bond market, while a sizable downward revision would be good news and could lead to improvements in mortgage pricing.

The last piece of data this week is the University of Michigan's revision to their Index of Consumer Sentiment for February late tomorrow morning. Current forecasts show this index not changing much from its preliminary estimate of 75.1. This index is fairly important because it helps us measure consumer confidence that translates into consumer willingness to spend.

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