Market Comment

Mortgage bond prices finished the week near unchanged to slightly positive. We started the week on a positive note Monday, sold off Tuesday as Fed officials sparred over inflation, and then rebounded the remainder of the week as the Fed continued their billion-dollar daily MBS purchases to keep rates in check. The data was mixed which is why different Fed officials view the economic situation differently. Some view recent signs of inflation as a concern. Others view it as “transitory.” Durable goods orders rose 1.8% vs the expected 0.8% increase. FHFA housing price index rose 1.4% as expected. Consumer confidence was 109.3 vs 114.5. Q2 GDP rose 6.7% vs the expected 6.6%. Jobless claims were 362K vs 335K. Personal income rose 0.2% vs 0.4%, Spending rose 0.8% vs 0.7%, Core PCE was up 0.3% as expected. Mortgage interest rates finished the week unchanged to better by approximately 1/8 of a discount point.

Looking Ahead
Economic IndicatorRelease Date & TimeConsensus EstimateAnalysis
Factory OrdersMonday, Oct. 4,
10:00 am, et
Up 0.8%Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
Trade DataTuesday, Oct. 5
8:30 am, et
$70.5B deficitImportant. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
ADP EmploymentWednesday, Oct. 6,
8:30 am, et
418KImportant. An indication of employment. Weakness may bring lower rates.
Weekly Jobless ClaimsThursday, Oct. 7,
8:30 am, et
403KImportant. An indication of employment. Higher claims may result in lower rates.
Consumer CreditThursday, Oct. 7,
3:00 pm, et
403KLow importance. A significantly large increase may lead to lower mortgage interest rates.
EmploymentFriday, Oct. 8,
8:30 am, et
Payrolls +500K
Very important. An increase in unemployment or weakness in payrolls may bring lower rates.

Trade Data

In the distant past the US economy tended to be viewed as relatively unaffected by economic activity in other countries. However, increased trades with other countries and an increased reliance on foreign purchases of US debt have generated a market awareness of trade-related issues. The exchange rate of the dollar and foreign trade flows are interrelated. One must buy dollars to purchase US exports and sell dollars to buy imports. Likewise, foreign investment in US debt requires the purchase of US dollars and is thus affected by exchange rates.

Each month the Commerce Department gathers an enormous amount of detailed data on exports and imports. The data is broken between goods and services trade. The overall trade balance is the dollar difference between US exports and imports on a seasonally adjusted basis. The report also highlights trade flows between the US and various partners. Since the mid-1970’s, US imports of consumer and capital goods have exceeded exports, so a merchandise trade deficit has existed. The US has always maintained a service trade surplus, and because this surplus is not enough to offset the merchandise trade deficit, a net export deficit has resulted.

Due to the overwhelming amount of data considered, trade is difficult to forecast, and can present surprises. For a variety of reasons, the financial markets will often be unaffected by surprises in trade data. However, the data still can cause mortgage interest rate volatility.