Market Comment - Week of February 1st, 2010
February 1st, 2010 9:16 AM

Market Comment - Week of February 1st, 2010

Mortgage bond prices fell last week pushing mortgage interest rates slightly higher. Most of the data early in the week was bond-friendly. Unfortunately the Fed's reminder that their purchases of mortgage bonds would cease after the first quarter sent bond prices tumbling Wednesday afternoon. This was followed by stronger than expected gross domestic product, employment cost index, and PCE price data Friday morning. Bonds were helped Friday afternoon as stocks remained jittery. Interest rates rose by about 1/8 of a discount point for the week.

The employment report Friday will be the most important event this week. Income, outlays, ISM Index, productivity, and factory orders data may also move the market. The ADP payrolls data will be carefully watched even though the release does not always reflect the results of the employment report. It still provides another view of the employment situation.

Economic Factors
Economic Indicator
Release Date Time
Consensus Estimate
Personal Income and Outlays
Monday, Feb. 1, 2010
Income up 0.3%, Outlays up 0.2%
Important. A measure of consumers' ability to spend. Weakness may lead to lower mortgage rates.
Construction Spending
Monday, Feb. 1, 2010
Down 0.3%
Low importance. An indication of economic strength. A significant decrease may lead to lower rates.
ISM Index
Monday, Feb. 1, 2010
Important. A measure of manufacturer sentiment. A larger decline may lead to lower mortgage rates.
ADP Employment
Wednesday, Feb. 3, 2010
Important. A measure of employment. A large decrease in payrolls may bring lower rates.
Preliminary Q4 Productivity
Thursday, Feb. 4, 2010
Up 5.9%
Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
Factory Orders
Thursday, Feb. 4, 2010
Up 1.5%
Important. A measure of manufacturing sector strength. A larger decrease may lead to lower rates.
Friday, Feb. 5, 2010
Unemp. @ 10%, Payrolls +20k
Very important. An increase in unemployment or a large decrease in payrolls may bring lower rates.
Consumer Credit
Friday, Feb. 5, 2010
Down $9.2 billion
Low importance. A significantly large increase may lead to lower mortgage interest rates.


The Institute for Supply Management (ISM), formerly the National Association of Purchasing Management (NAPM), releases the "Report on Business" on the first working day of each month. Part of this report is the "diffusion index," which tracks the economy's ups and downs fairly well.

In conducting this survey, the ISM questions purchasing executives from over 250 industrial companies compiling data on production, orders, commodity prices, inventories, vendor performance, and employment. Each of the respondents is asked to rank the categories as "up" or "down." Various weights are applied to the individual components to form the composite index.

A composite index reading of 50 can be thought of as a "swing point." A reading above 50 implies an increase in economic activity, while a reading below 50 indicates a decline. As a general rule of thumb, when the index approaches 60, investors begin to worry about an overheated economy. A slide below 40 suggests that recession is at hand.

The ISM report is difficult for economists to forecast because there is little data upon which to base an educated guess. The report has a large "surprise factor" and can often prompt a significant market reaction. Be cautious going into the data.

Posted in:General
Posted by Philip Jernigan on February 1st, 2010 9:16 AMPost a Comment

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