News June 4th

Market CommentMortgage bond prices fell last week pushing mortgage interest rates higher. Stronger than expected consumer confidence data started the week on a negative tone. The employment report released Friday indicated non-farm payrolls rose 157,000, higher than economists’ estimates for an increase of 135,000. A strong labor market can be inflationary.
For the week, interest rates on government and conventional loans rose by about 1/2 of a discount point.
The productivity data to be released Wednesday will be the most important event this week. Factory orders and trade data will also be important.
LOOKING AHEAD
EconomicIndicator
ReleaseDate & Time
ConsensusEstimate
Analysis
Factory Orders
Monday, June 4,10:00 am, et
Up 0.6%
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
Revised Q1 Productivity
Wednesday, June 6,8:30 am, et
Up 1.4%
Important. A measure of output per hour. Weakness may lead to lower mortgage rates.
Consumer Credit
Thursday, June 7,3:00 pm, et
Up $6 billion
Low importance. A significantly larger than expected increase may lead to lower mortgage interest rates.
Trade Data
Friday, June 8,8:30 am, et
$63 billion deficit
Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
Credit DemandInflation is typically the most important focus for the mortgage interest rate market. Unfortunately, mortgage interest rates have recently pushed higher from the fear of inflation. Most of the recent increases in interest rates have come following stronger than expected data despite uncertainly regarding the strength of the economy.
The level of interest rates reflects the balance between the supply of money from investors and the demand for money by borrowers. Rising inflationary expectations cause investors to require higher rates of return on investments to compensate for the erosion of the principal that eventually is returned to them. Regardless of inflation levels, though, rising economic activity can increase the demand for investors’ funds, and thereby lead to higher interest rates.
The demand for money diminishes as the economy struggles. The Fed lowers interest rates as an incentive to businesses and consumers to increase their borrowings. The Fed hopes manufacturers will increase their investments in plants, equipment and inventories and that consumers will push housing construction higher along with consumer spending and with that, consumer debt. The inverse is also true.
Analysts will monitor this week’s consumer credit levels for any indications that consumers may be tapped out.
There is much debate in the financial community about the future. Economists, market analysts, and traders all seem to have a different opinion about the future state of the economy and especially the effects of rising energy prices. One thing most market participants agree on is both the bond and stock markets are going to see some volatility until a direction is clear. Now is a great time to take advantage of rates at the still historically favorable levels.
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