Weekly Market Commentary: Mortgage bond prices were higher last week, which pushed mortgage rates slightly lower. The financial markets remained extremely volatile, a trend that is expected to continue. Weaker than expected retail sales data helped rates start off lower and headed in the right direction. Retail sales rose 0.4% versus the expected 0.7% increase. Higher than expected consumer prices caused some concern. Fortunately Fed Chairman Bernanke’s testimony to the House and Senate was dovish (bond friendly.) Stronger than expected Philadelphia Fed data Thursday morning caused rates to spike higher. Fortunately, mortgage interest rates finished the week better by approximately 1/8 of a discount point. Durable Goods Orders Durable goods orders are generally believed to be a precursor of activity in the manufacturing sector because manufacturing must have an order before considering an increase in production. Conversely, a decrease in orders eventually causes production to be scaled back; otherwise the manufacturer accumulates inventories, which must be financed. Unfortunately, durable goods orders data has many drawbacks. The first problem with the orders data is that they are extremely volatile. The volatility of the data usually is attributed to the civilian aircraft and defense components of the figure. For example, if Boeing has a big order for one of its jumbo jets, the civilian aircraft category can change by $3-4 billion. The same scenario is evident when an aircraft carrier is ordered, surges in the defense category result. The second problem with the data is that orders are continuously being revised. There are many times in the past when the advance report on durables showed an increase while a revision a week later showed a decrease. The revised data is found in the report on manufacturing orders, shipments, and inventories. Since the data is very volatile and difficult to forecast, there is quite often a huge disparity between the actual release and the initial projections. Be cautious heading into the data
Posted on: Fri, 19 Jul 2013 20:54:26 +0000
Trending Topics
Recently Viewed Topics
© 2015