Mel's Blog

This week's FOMC meeting has adjourned with no change to key short-term interest rates. This was widely expected by market participants. The post-meeting statement really didn't give us any new insight to the Fed's next move. It did renew the same thoughts previously mentioned- that the economy is leveling off but to expect weak economic conditions for the immediate future. They also indicated that inflation is not an immediate concern to the economy.

The lack of a change to rates had no impact on trading as it was expected. The portion of the statement that indicated the spiraling economy is stabilizing can be considered somewhat negative for the bond market. However, the lack of concern about inflationary pressures offset any concerns that may have arisen from the reminder than the economic downturn is slowing.

Today's 10-year Treasury Note auction has caused some stress in bonds during afternoon trading though. The sale was met with an average demand at best. The results were far from the worst we have seen but also nowhere near the recent levels of interest. This led to bond prices falling immediately after the 1:00 PM ET announcement and the FOMC meeting has done nothing to push them higher.

Overall, I am expecting to see a small upward revision to mortgage rates this afternoon. If your lender does not revise higher today, it will be built into tomorrow's pricing. Some lenders may opt to wait for tomorrow morning's key economic data to be posted before reflecting this change. If that is the case, keep in mind you already have a slight increase waiting from this afternoon's events.

This morning's only relevant economic data was June's Trade Balance report that revealed a $27.0 billion deficit. This was smaller than expected, but this data is not considered to be highly important to the markets so its impact on this morning's trading and mortgage rates was minimal.

Tomorrow morning's sole monthly report is July's Retail Sales data. This data is very important to the financial markets and mortgage rates because it helps us measure consumer spending. Since consumer spending makes up two-thirds of the U.S. economy, any data related to it can cause a fair amount of movement in the markets. A smaller than expected increase would indicate that consumers are spending less than previously thought, potentially slowing the economic recovery. This is good news for the bond market and mortgage rates as it eases inflation concerns and makes long-term securities such as mortgage-related bonds more attractive to investors. Current forecasts are calling for an increase of 0.7%.
                Mel

The recent appointment of Ben Bernanke for a second term as the Chairman of the Federal Reserve was no surprise, as a large part of the credit for steering the economic ship towards a safe harbor undoubtedly goes to him.

Indeed, reports suggest tangible improvements on several fronts. Prices of single family homes rose by 1.4 percent in June, recording an increase for the second month in a row. New home sales were up 9.6 percent at an annualized rate to 433,000 units in July. Inventory is now 7.5 months of sale, down from 8.5 a month earlier. News from the manufacturing sector was also positive, with orders for durable goods -- notably autos, capital goods and aircrafts -- surging in July. Leading tech manufacturers such as Intel project a higher growth in coming quarters. The rise in the consumer confidence index by 7 points in August was also a positive signal. It was heartening to note that the real GDP shrank by only 1 percent in the second quarter, following historic declines in the past few quarters.

Having said that, it is only fair to acknowledge that there are two sides to each coin. The specter of uncertainty still looms large. Unemployment claims still remain high at 570,000, with the job market not yet showing signs of revival. The unemployment rate is expected to cross 10 percent in the not-too-distant future. Personal income remains flat, while spending rose only marginally in July. Even more significantly, the federal budget deficit is expected to balloon to a rather difficult-to-count $9 trillion. That needs to be brought down slowly with minimal impact on economies across the globe. The government has to find new avenues to earn revenue other than tax increases and ensure job generation on a longer-time horizon.

The focus for this week will be on reports of the employment situation and job market, construction spending, pending home sales index and Treasury bills auctions.

Saving is here to stay. Have you ever wondered about the cost of printing extra pages? According to a study by a non-profit organization, an estimated 17 percent of the pages printed are wasted. When discouraged, this translates to an estimated savings of $17 billion per year on office printing alone, not to mention saving of approximately 30 million trees. Do try to keep that in mind as your work day progresses.

                                Mel

Thursday's bond market has opened flat again as investors seem to be unmoved by recent economic data. The stock markets are showing losses with the Dow down 30 points and the Nasdaq down 19 points. The bond market is currently down 5/32, but I am not expecting to see much of a change in this morning's mortgage rates.

Today's release of the 2nd Quarter Gross Domestic Product (GDP) revision revealed no change to the previous estimate of down 1.0%. Analysts were expecting to see a downward revision to a decline of 1.4%, meaning that the economy was not as weak as some had thought. While this is considered negative news for bonds since it was thought the economy had slowed at a quicker pace than it actually did, the data has not influenced mortgage rates this morning. It could be that this is relatively old news at this point. There is a final revision being released next month, but it often has little impact on bond trading or mortgage rates.

The Labor Department said that 570,000 new claims for unemployment benefits were filed last week. This was close to forecasts and has also had little impact on bond trading or mortgage rates this morning.

Yesterday's 5-year Treasury Note auction went okay. It was met with an average demand from investors and the other measurements of success were indicated the same. It was not an overly strong auction, but it also didn't qualify as a poor sale either. Today's 7-year Note sale is also of interest to mortgage shoppers. The results of it will be posted at 1:00 PM ET. If it was met with a good demand from investors, we could see bond prices rise and mortgage rates drop during afternoon trading. However, a lackluster interest in the sale could lead to bond selling and upward revisions to mortgage rates later today.

Tomorrow brings us the release of two relevant economic reports. The first is July's Personal Income and Outlays report that measures consumer ability to spend and current spending habits. It is expected to show an increase of 0.1% in income and a 0.2% increase in spending. Weaker than expected numbers would be good news for the bond market and mortgage rates.

August's revision to the University of Michigan's Index of Consumer Sentiment is also due tomorrow morning. It gives us a measurement of consumer willingness to spend. It is expected to show a reading of 64.8. If it revises lower, consumers were less confident about their personal financial situations than previously thought. This would be good news for the bond market and mortgage rates.

                Mel

Wednesday's bond market has opened flat despite stronger than expected economic news. The stock markets are showing minor gains with the Dow up 30 points and the Nasdaq up 6 points. The bond market is nearly unchanged from yesterday's closing level, but we will still likely see a slight improvement in this morning's mortgage rates due to strength in bonds late yesterday.

The Commerce Department gave us July's Durable Goods Orders report, showing a 4.9% increase in orders for big-ticket products. This was larger than the 3.2% that was expected and an upward revision to June's orders indicates that the manufacturing sector may be stronger than many had expected. This is bad news for bonds and mortgage rates because strength in manufacturing helps support the theory that the broader economy will recover sooner than later.

Also released this morning was July's New Home Sales data that greatly exceeded forecasts. The 9.6% increase in sales of newly constructed homes was well above forecasts and brought them to their best level since September of last year. This also can be considered negative news for bonds because a strengthening housing sector would give a strong boost to the overall economy. However, this data doesn't usually have a significant influence on mortgage rates.

We also have today's 5-year Treasury Note auction to watch for. Results of the sale will be posted at 1:00 PM ET. If it was met with a good demand from investors, we could see bond prices rise and mortgage rates drop during afternoon trading. However, a lackluster interest in the sale could lead to bond selling and upward revisions to mortgage rates.

Tomorrow's only monthly or quarterly data is the first revision to the 2nd Quarter Gross Domestic Product (GDP). Last month's preliminary reading revealed that the economy declined at an annual rate of 1.0%. A larger than expected downward revision should help lower mortgage rates Thursday, especially if the inflation portion of the release does not get revised higher. Current forecasts are calling for a revised reading of down 1.4%. There will be a final revision issued next month, but it probably will have little impact on mortgage rates.

The Labor Department will give us weekly unemployment claims tomorrow morning and the 7-year Note auction is tomorrow also. I don't expect the unemployment figures to have much of an impact on the bond market and mortgage rates, but the Treasury sale could influence rates during afternoon trading.

                                Mel

Tuesday's bond market has opened in negative territory after this morning's economic news showed a higher level of consumer confidence than was expected. The stock markets are showing gains with the Dow is currently up 30 points the Nasdaq up 6  points. The bond market  closed  currently up197/32,  we will see an improvement in this morning's mortgage rates.

The Conference Board said late this morning that their Consumer Confidence Index for August stood at 54.1. This exceeded forecasts of a 46.6 reading, meaning that consumers were more optimistic about their own financial situations than many had thought. That is considered bad news for bonds and mortgage rates because rising confidence usually means that consumers are more likely to make large purchases in the near future. Since consumer spending makes up two-thirds of the U.S. economy, weaker levels of spending makes bonds more attractive to investors.

The Commerce Department will post July's Durable Goods Orders tomorrow morning, giving us an important measure of manufacturing sector strength. This data tracks orders at U.S. factories for big-ticket items, or products that are expected to last three or more years. A much weaker reading than the expected 3.2% rise that is expected would indicate that the manufacturing sector is not as strong as thought. This would be good news for bonds and should lead to lower mortgage rates.

Also scheduled for release tomorrow morning is July's New Home Sales data. This report is the least important release of the week. It will give us an indication of housing sector strength and mortgage credit demand, but only tracks approximately 15% of all home sales. It usually doesn't have a major impact on bond prices or mortgage rates unless it varies greatly from forecasts.

Also worth noting is tomorrow's 5-year Treasury Note auction. Result s of the sale will be posted at 1:00 PM ET tomorrow. If it was met with a good demand from investors, we could see bond prices rise and mortgage rates drop during afternoon trading. However, a lackluster interest in the sale could lead to bond selling and upward revisions to mortgage rates.

                Mel

There was a dearth of big economic news this past week, and that was sort of a good thing. The Existing Home Sales report showed that purchases in July rose 7.2 percent month-over-month to the highest level in two years. That was a big gain, and favorable news for the housing market. The dark cloud was that despite a large increase in the number of homes being sold, median prices fell 15 percent. This suggests that many of the sales were done on a distressed basis (such as foreclosures and short sales), and that many of the buyers were bargain hunters taking advantage of good deals coupled with low interest rates. Also, it's likely that a lot of them were first time buyers taking advantage of the $8,000 tax credit available as part of the government's economic stimulus package. The program ends December 1st, so that element of support for the real estate market will be going away in a couple of months.

Ben Bernanke and central bankers from around the world, as well as lots of esteemed economists and, of course, the media, descended on Jackson Hole, Wyoming for their annual summer get-together to have fun and discuss the economy. Bernanke's comments from his keynote speech on Friday were viewed as cautiously optimistic, but also didn't contain any suggestion that the Fed would need to raise rates anytime soon. That combination was music to the ears of the financial markets. It's like the doctor telling your Mom that you're well enough to go along on the family vacation, but not yet well enough to be back in school.

Bond prices were essentially unchanged for the week, though long term yields fell while short term yields rose, reflecting an overall easing of risk aversion. The equity markets rallied on the good news (or lack of news), with the S&P 500 up over 2 percent, and real estate investment trusts and foreign stocks up over 1 percent. We've seen a pretty consistent pattern in recent months that stocks, oil, and gold advance together, while bonds and the dollar fall (and vice versa during stock market retreats). That's actually the old-fashioned textbook pattern for stock and bond price movements, although there have been long stretches in recent decades where it hasn't held up.

Having gone through a recession and a financial markets crisis that were definitely way beyond the norm by contemporary standards, today's state of affairs feels like a much more normal late-recession, early-recovery scenario. People are asking the normal questions like, "Will we see a double dip?" and "When will inflation start to reappear?" and "How much longer will unemployment keep rising?" It's much better to be hearing those questions rather than questions like, "Will we be reduced to the barter system?" and "Is Communism the answer?" and "How much ammunition, canned food, and gold should I hoard in the basement to make it through the coming Armageddon?"

For the coming week, we have several interesting releases coming out. On Tuesday, the S&P/Case-Shiller home price indexes through June will be released. Market participants are hoping that June's home prices repeated their May performance, when prices actually managed to edge up slightly, a welcome relief from the past several years' norm of plummeting relentlessly. Also on Tuesday, we will see the Consumer Confidence Index, which is expected to show improvement. As indicators go, Consumer Confidence is one of the few that is fairly insightful as a leading indicator of future trends. On Thursday, we will see the updated revision to the second quarter GDP numbers. These are expected to be revised downward to show the economy shrinking at an annualized rate of 1.4 percent for the quarter, and that's par for the course when you're in a recession.

Finally, way out at the end of next week, it's worth noting that we will be seeing the August Employment Report. It is expected to show a net loss of 231,000 jobs and an uptick in unemployment to 9.5 percent. Although those numbers aren't wonderful, they would represent an improvement in the trend from prior months in the sense that things are getting worse more slowly. Employment is an indicator that lags other events in the economy, but it's near and dear to the hearts of most working Americans, because it's the one that affects our well being most directly

                Mel

Information provided by Amtust Bank Capital Markets

Thursday's bond market has opened fairly flat following  gains in stocks and no major surprises in today's economic data. The Dow is currently up 71 points while the Nasdaq has gained 20 points. The bond market is currently up 22/32, but I don't believe we will see much of a change in this morning's mortgage rates.

The Labor Department gave us weekly unemployment figures early this morning. They reported that 576,000 new claims for unemployment benefits were filed last week. This was more than what analysts were expecting to see, but this data is not considered to be highly important. Therefore, it has had a minimal impact on bond trading and mortgage rates this morning.

July's Leading Economic Indicators (LEI) was released by the Conference Board. This index attempts to measure economic activity over the next three to six months and is considered to be moderately important. It showed an increase of 0.6%, indicating we should see an increase in economic activity over the next few months. But it matched forecasts, making it a non-factor in this morning's rates, plus we would need to see several months of increases because of the volatile nature of this index.

Tomorrow's only relevant data is July's Existing Home Sales. The National Association of Realtors will release this report, giving us a measurement of housing sector strength. It covers approximately 85% of home sales in the U.S., but usually does not have a major influence on bond trading and mortgage rates unless it varies greatly from analysts' forecasts. It is expected to show an increase from June's sales, meaning the housing sector is strengthening.

                Mel

Tuesday's bond market has opened down slightly despite the release of weaker than expected economic news. The stock markets have recovered some of yesterday's losses with the Dow up 82 points and the Nasdaq up 25 points. The bond market is currently down 38 basis points, which should push rates lower this morning.

The Labor Department gave us July's Producer Price Index (PPI) this morning, saying that the overall index fell 0.9% and that the core data reading fell 0.1%. Analysts had predicted a 0.2% decline in the overall reading and a 0.1% rise in the core data. This means that prices at the producer level of the economy were much weaker than expected. That indicates that inflationary pressures at that level are not a concern at the moment, making long-term securities such as mortgage related bonds more attractive to investors. Unfortunately, traders seem to be more concerned with the stock markets than today's economic news.

The second report of the day was also favorable for bonds, but it is much less important than the PPI reading. The Commerce Department said that starts of new homes fell last month, hinting that the housing sector may not be as ready to recover as some analysts had thought. Many market participants were expecting to see an increase in stats of new homes. A weak housing sector if favorable to bonds because it makes a broader economic recovery less likely in the immediate future.

There is no relevant economic data scheduled for release tomorrow, so look for the stock markets to again influence bond trading and mortgage pricing. If the stock markets can hold this morning's gains and move higher tomorrow morning, there is a pretty good possibility of seeing mortgage rates inch higher tomorrow. But if we see stock weakness, bonds may benefit, pushing mortgage rates lower.

Thursday's primary data is July's Leading Economic Indicators (LEI) from t he Conference Board. This index attempts to measure economic activity over the next three to six months and is considered to be moderately important. A higher than expected reading is bad news for the bond market because it indicates that the economy may be strengthening more than thought. However, a weaker than expected reading means that the economy may not grow as much as predicted, making stocks less appealing to investors. This also eases inflation concerns in the bond market and could lead to slightly lower mortgage rates Thursday if the stock markets remain calm. Current forecasts are calling for an increase of 0.6% in the index, indicating economic growth over the next couple of months.

                                Mel

It is significant to note that signs of renewed life in many emerging economies are even stronger than in the developed world and no wonder... their stock market is showing a turbo-charged movement. For example, despite recent weakness in Chinese equities, the Shanghai index is still up 58 percent this year, making it one of the world's best-performing markets. Much of its recent sharp drop stems from its outperformance this year compared with other markets. At one point, the index was up 91 percent for the year. Back home, the Federal Reserve Open Market Committee held its regular meeting this week, and while there was no change to policy, they did detail a few items for the market to digest. The Fed described economic activity as "leveling out," noting improvement in financial markets, while expecting activity to remain weak "for a time." Essentially, the worst of the economic decline may be largely behind us, but improvement isn't happening rapidly, if at all.

The Federal Open Market Committee acknowledged the tentative state of U.S. recovery prospects in both words and actions this week while recognizing the improvement that has occurred. In terms of words, activity is "leveling out" rather than bottoming out, "weak income growth" is now seen as an impediment to consumer recovery, and the attitudes on inflation have not changed at all. In terms of actions, policy settings remain unchanged, with merely an indication that the $300 billion Treasury purchase program will phase out a bit more gradually in coming weeks. A bigger issue is that the labor market still poses a major obstacle to consumer recovery. Initial jobless claims remain high, and declines in continuing claims mostly reflect the exhaustion of regular benefits rather than improving job availability. As a result, confidence remains depressed as well. The MBS purchase program seems unlikely to expand, but probably will be stretched out past year end. A transition approach seems most likely, similar to the policy the Fed announced on Treasury purchases yesterday. In fact, the recent slowdown in the pace of net purchases might indicate that a transition has already begun. Recently, net purchases have declined and at the current pace, the program will not hit its $1.25 trillion target until late January or early February.

The economic data released this week continues to point to an adjusting pattern for the economy, contributing to the "leveling out" the Fed observed. Some positive news can have side effects too, such as the sharp increase in worker productivity for the second quarter of 2009, where the 6.4 percent gain beat even the optimistic forecasts. The jump in worker output means that inflation measured in the form of per unit labor costs showed a 5.8 percent decline for the period. Rising productivity means that workers can be paid more without any undue effect on inflation, which is a good thing for those with jobs; however, it also means that businesses are meeting production goals without needing to add workers, and that's detrimental to those looking for jobs. For the week ending August 8, another 558,000 new applications for unemployment assistance were filed, a number that is below 2009 peaks but still pointing to a contracting labor market. Of course, one of the positive effects of an unfortunately high available labor pool is that wage-fostered inflation pressures cannot form. It also means that price pressures coming from other areas such as commodities and services may actually act as a kind of tax, further damping economic growth.

More turbulent news in mortgage banking came on Friday as Colonial BancGroup, located in Montgomery, AL, was seized by FDIC and sold to BB&T. Earlier this month, Taylor Bean & Whitaker was shut down, leading to massive warehouse loan problems and job losses. Colonial is not only the largest seizure this year with $25 billion in assets and $20 billion in deposits, but the sixth largest bank failure in U.S. history. This is unfortunate for many smaller mortgage banks who were using Colonial for warehouse lending, so that leaves many independents scrambling for warehouse lines. The FDIC's trust fund, used in covering bank failures, took another hit in the range of $3-7 billion by some estimates. The Indy Mac failure last year has been the most expensive for FDIC with almost an $11 billion hit.

A fair drop in Treasury yields last week brought down the Fixed-Rate Mortgage below 5.5 percent level. The fixed counterpart, hybrid 5/1 ARM originations seem to be gaining momentum, as their rates are getting below the 4.75 percent level. The secondary market for hybrid ARMs is showing some activity and spreads have narrowed down similar to the TED spread, which is the difference between 3 month borrowing rates for banks versus the Treasury (an indicator of market credit risk). This spread has recently moved to 0.27 percent, its tightest levels since March, 2007.

In economic releases this week, the market will be watching Tuesday's July housing starts (expected +2.7 percent), and Thursday's initial jobless claims report (expected to decline -8,000 to 550,000). Meanwhile, enjoy the remaining summer and don't forget to trade in all of your "clunkers."

Mel

Information provided by Amtrust Banks Capital Markets

Tuesday's bond market has opened in positive territory following early stock weakness and favorable result s in this morning's economic news. The stock markets are posting noticeable losses with the Dow down 97 points and the Nasdaq down 26 points. The bond market is currently up 14/32, which with yesterday's late strength should improve this morning's mortgage rates.

Today's relevant economic data was Employee Productivity and Costs data for the second quarter. It showed a sharp increase in productivity compared to the 1st quarter's final reading. The 6.4% jump was higher than analysts had expected and is considered good news for bonds and mortgage rates. This data didn't push stocks lower, but the drop in stocks has also helped boost bond prices this morning.

June's Trade Balance report will be released early tomorrow morning. It gives us the size of the U.S. trade deficit but is the week's least important report and likely will have little impact on the bond market and mortgage rates. Analysts are expecting to see a $28.6 billion deficit, but it will take a wide variance to directly influence mortgage pricing.

The FOMC meeting that began today will adjourn at 2:15 PM ET tomorrow. It is expected to yield no change to key interest rates. Usually, the post-meeting comments seem to have more of an influence on the markets than the rate adjustments themselves, or a lack of one in many cases. Look for the statement to lead to volatility during afternoon trading if it hints at what the Fed's next move may be and when it will come. If the statement does not give us new information, mortgage rates will probably move little after its release.

The most important data of the week comes Thursday and Friday when we will get measurements of consumer spending, inflation at the consumer level of the economy, industrial production and consumer sentiment. This is where we will probably see the most movement in rates and I will remain very cautious towards rates until we get past the FOMC statement and those economic reports. I suspect that we may see bond prices react negatively to some of the upcoming events that will lead to another increase in mortgage rates.

Also worth noting are two important Treasury auctions this week. The sale of 10-year Notes will be held tomorrow while 30-year Bonds will be sold Thursday. We often see some weakness in bonds ahead of the sales as the firms participating prepare for them. However, as long as they are met with decent demand from investors, the firms usually buy them back. This tends to help recover any presale losses. But, if the sales are met with a lackluster interest from investors- particularly international buyers, the bond market may move lower after the results are posted and mortgage rates may move higher. Those results will be announced a t 1:00 PM each sale day.
               

                Mel

Monday's bond market has opened up slightly as traders prepare for this week's data and other important events. The stock markets are showing minor losses with the Dow down 64 points and the Nasdaq down 16 points. The bond market is currently up66 basis points, but we will likely see an improvement in this morning's rates.

There is no relevant economic data scheduled for release today. The rest of the week brings us the release of six relevant economic reports in addition to another FOMC meeting. The first is Employee Productivity and Costs data for the second quarter that will be released tomorrow morning. It will give us an indication of employee output. High levels of productivity are believed to allow the economy to grow without fears of inflation. I don't see this being a big mover of mortgage pricing, but since it is the only data of the day it may influence rates slightly. Analysts are currently expecting to see an increase in productivity of 5.4%. A higher than expected reading could help improve bonds, leading to lower mortgage rates tomorrow.

The FOMC meeting will begin tomorrow morning and adjourn at 2:15 PM ET Wednesday. It is expected to yield no change to key interest rates. Usually, the post-meeting comments seem to have more of an influence on the markets than the rate adjustments themselves, or a lack of one in many cases. Look for the statement to lead to volatility during afternoon trading if it hints at what the Fed's next move may be and when it will come. If the statement does not give us new information, mortgage rates will probably move little after its release.

The most important data of the week comes Thursday and Friday when we will get measurements of consumer spending, inflation at the consumer level of the economy, industrial production and consumer sentiment. This is where we will probably see the most movement in rates.

Also worth noting are two important Treasury auctions this week. The sale of 10-year Notes will be held Wednesday while 30-year Bonds will be sold Thursday. We often see some weakness in bonds ahead of the sales as the firms participating prepare for them. However, as long as they are met with decent demand from investors, the firms usually buy them back. This tends to help recover any presale losses. But, if the sales are met with a lackluster interest from investors, particularly international buyers, the bond market may move lower after the results are posted and mortgage rates may move higher. Those results will be announced at 1:00 PM each sale day.

Overall, look for the most movement in bond prices and mortgage rates the second half of the week. Thursday or Friday will likely turn out to be the most important day. If we get stronger than expected results in the Retail Sales report and Consumer Price Index, I fear that we may see mortgage rates spike higher fairly quickly. I suspect the FOMC meeting will not have as much of an influence on mortgage rates as recent meetings have, but the markets can react wildly to a single word or omission of a word in the statement, so we need to be cautious. This is certainly another week that continuous contact with your mortgage professional is highly recommended if you are still floating an interest rate.

Mel

Friday's bond market has opened down sharply following the release of stronger than expected employment numbers. The stock markets are reacting favorably to the data with the Dow up 113 points and the Nasdaq up 27 points. The bond market is currently down 44 basis points, which should push this morning's mortgage rates higher.

The Labor Department reported this morning that only 247,000 jobs were lost last month and that the U.S. unemployment rate fell to 9.4%. Both of these readings were stronger than expected. Analysts had forecasted a job loss of 328,000 and an increase on the unemployment rate of 0.1% to bring it to 9.6%. In addition, average hourly earnings also exceeded forecasts with a 0.2% increase.

Today's news was definitely negative for bonds and mortgage rates. It indicates that the employment sector is not as bad as many had thought. While it was still softening last month, it was at a much slower pace than expected. That helps support the theory that the recession may be nearing an end. In fact, some analysts are already stating they think it has ended. This is bad for bonds because economic growth often creates an environment with inflation concerns that make bonds less attractive to investors. The result usually ends up being higher mortgage rates as investors shift funds into a growing stock market.

Next week is another busy one for the markets and mortgage rates. There are several very important economic releases scheduled to be posted in addition to another FOMC meeting that can heavily influence bond trading and mortgage rates. None of them is due out Monday, but there is relevant data or events scheduled for every other day of the week.

                Mel

Wednesday's bond market has opened in negative territory as yesterday's selling carries into today. The stock markets are showing losses with the Dow down 45 points and the Nasdaq down 18 points. The bond market is currently down 44 bases points, which with yesterday's weakness should push this morning's mortgage rates higher .

The Commerce Department said this morning that June's Factory Orders data rose 0.4%. This was a little stronger than revised forecasts had called for, but has had little impact on today's trading. The data is not considered to be highly important and traders are looking towards Friday's release for major news on the economy.

There is no relevant monthly or quarterly economic news scheduled for release tomorrow. The Labor Department will give us last week's unemployment figures early tomorrow morning, but this data is considered to be of low importance to the markets. It will not impact bond trading or mortgage rates unless we see a significant variance from the 580,000 new claims for benefits that analysts are expecting to see.

The most important piece of data this week and arguably each month is the monthly Employment report that will be posted Friday morning. This report gives us the U.S. unemployment rate, number of jobs added or lost during the month and the average hourly earnings reading for July. The ideal situation for the bond market is rising unemployment, a sizable loss of jobs and little change in earnings. This report is considered to be one of the single most important releases that we see each month, therefore, can heavily influence the markets and mortgage rates.

While the GDP is arguably the single most important report in general, it is posted quarterly rather than monthly like the Employment report. Friday's report is expected to show that the unemployment rate rose to 9.6% last month while approximately 328,000 jobs were lost. The unemployment rate probably will not be much of a factor unless it moved much more than the 0.1% that is expected. However, due to the importance of these readings, we will most likely see quite a bit of volatility in the markets and mortgage pricing Friday morning if they vary from forecasts.

                Mel

Investors were in a positive frame of mind this past week while hoping for a better economic outlook ahead. Encouraging economic indicators, as well as better than expected corporate earnings, proved to be major factors influencing investors to believe that the economy has already reached its lowest level. Even The Fed's Beige book, a report card on regional economic health, stated that economic decline is slowing. Still, continuously rising unemployment and rising oil prices gave some investors second thoughts on how fast the economy is recovering. Investors were looking beyond short-term indicators, and that's why in spite of a disappointing consumer confidence report and durable good orders, investors banked on a promising second quarter gross GDP. For the second quarter, GDP increased to a rate of -1 percent, beating the investor's expectation of -1.5 percent.

Rising jobless claims and the rising unemployment rate are putting downward pressure on economic recovery. For the week ending July 25, 584,000 new applications were filed for unemployment assistance. The Employment Cost Index rose by 0.4 percent during the second quarter, with wages rising by 0.3 percent and benefit costs by 0.4 percent; certainly dimming the hope of an improved unemployment rate.

It was a volatile week for stock trading. The stock market saw a tug of war between short sellers and buyers, but in the end, long investors emerged as victorious. For the end of the week, all major indices ended up by nearly 1 percent. Riding high on quarter end profits, the banking sector led the markets with a 4.4 percent gain, while the energy and utilities sector lost 1.6 percent and 2.2 percent respectively. The Consumer Confidence index witnessed some downward movement, but that was due to rising unemployment and oil prices. Treasuries also had a very volatile week. The Treasury auctioned off $115 billion worth of debt this past week to meet government spending demand. Yields on the 2-year went up by 7 bps due to concern of oversupply while the 5-year and 10-year treasury yields went down by 7 bps and 26 bps, respectively. The three-month LIBOR rate also went down by 2 bps.

The housing market gave investors something to cheer about this past week, with better than expected numbers in existing home sales and new home sales. This caused a substantial drop in inventory levels, which declined to 8.8 months. Low interest rates and tax credits were the driving factors for the rise in home sales. 30-year fixed mortgage rates were stuck around 5.25 due to declining 10-year yields.

The coming week will keep investors looking out for rising vehicle sales due to the government-sponsored CARS (Cash for Clunkers) program on Monday, with personal spending and personal income indexes to arrive on Tuesday. Factory orders and ISM non manufacturing composite index will come out on Thursday, which should give investors some insight on the pace of the economic recovery rate.

Mel

Info provided by Amtrust Capital Markets