Market Comment - Week of July 27th, 2009
July 27th, 2009 4:18 PM

Mortgage bond prices rallied the first portion of the week only to give back the gains as stocks surged. The DOW eclipsed the 9000 mark. Ben Bernanke spoke of a "jobless recovery", a situation where employers use productivity to increase production without additional labor. This would basically be an environment where the unemployment rate remains high long after the economy is in recovery. There wasn't much data but the existing home sales data did come in higher than expected. For the week interest rates rose by about 1/8 of a discount point.

The US Treasury will auction $115 billion of 2, 5, and 7-year notes this week. The additional debt supply may pressure rates. With so many data releases expect the market to be very volatile.

Economic Factors
Economic Indicator
Release Date Time
Consensus Estimate
New Home Sales
Monday, July 27, 2009
Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
Consumer Confidence
Tuesday, July 28, 2009
Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates.
Durable Goods Orders
Wednesday, July 29, 2009
Down 0.5%
Important. An indication of the demand for "big ticket" items. Weakness may lead to lower rates.
Fed "Beige Book"
Wednesday, July 29, 2009
Important. This report details current economic conditions across the US. Weakness may lead to lower rates.
Q2 Advance GDP
Friday, July 31, 2009
Down 1.5%
Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
PCE Core Inflation
Friday, July 31, 2009
Up 2.4%
Important. A measure of price increases for all domestic personal consumption. Weaker figure may help rates improve.
Q2 Employment Cost Index
Friday, July 31, 2009
Up 0.3%
Very important. A measure of wage inflation. Weakness may lead to lower rates.

Employment Cost Index

The employment cost index is a quarterly report issued by the Department of Labor. The report measures the growth of wages, salaries, and benefits costs over a certain period of time. Though ECI figures are usually weeks old, the data remains the best indicator of employment price pressures considering it factors employees' total compensation.

If wage pressures become evident, higher expectations of inflation also tend to arise. However, increasing compensation does not necessarily lead to increased inflationary pressures. Oftentimes, increased productivity enables employers to increase compensation without increasing the costs of their goods or services.

It is important to note that no single economic indicator can consistently predict the future of the economy. However, the employment cost index is a closely watched release. Most of the recent Fed releases and speeches indicate inflation is a concern and market participants remain cautious. Now is a good time to take advantage of mortgage interest rates at their current levels to avoid exposure to future market volatility.

Posted in:General
Posted by Philip Jernigan on July 27th, 2009 4:18 PMPost a Comment

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