Market Analysis

This week is expected to be pivotal for mortgage rates. On Friday, February’s Non Farm Payroll report is expected to show job losses in the 20,000 to 50,000 range. A number significantly higher than that may support steady to possibly slightly lower rates. A number better than the 20,000 may put upward pressure on rates. Industry analysts are somewhat baffled as the continuing narrow spread between the 10 Year US Treasury Bond and Mortgage-Backed Securities (MBS) issued by Fannie Mae and Freddie Mac. By now, most analysts had expected the market to price in a larger risk premium for the MBS and rates were expected to be in the low to mid 5’s. Continued speculation of a stock market correction and problems with sovereign debt in Europe have kept the market on edge enough that investors are still willing to accept lower yields/rates in return for the relative safety of US Treasury notes and the MBS.

Below is a recap of this week’s economic calendar:

Monday, March 1, 2010

January Personal Income and Spending and PCE Index – Personal income was expected to increase .4% and only increased .1%. Personal spending was expected to increase .4% and increased .5% (the increase in spending was attributed more to lower savings than higher income). The Personal Consumption Expenditure (PCE) index was expected unchanged and came in unchanged.

January Construction Spending – declined .6% which was exactly what the market had been anticipating

February Institute of Supply Management (ISM) Manufacturing Index – expected 57.9 reading, actual was 56.5.

Tuesday, March 2, 2010

No significant economic data released

Wednesday, March 3, 2010

February ADP Employment Change Report – Expectations are for 10,000 private sector job losses compared to 22,000 job losses in January.

February ISM Service Sector Index – Expected 51.0 reading up from 50.5 in January

Federal Reserve Beige Book – expected to show slowly improving economic conditions for non employment metrics but continued very weak employment.

Thursday, March 4, 2010

Initial Jobless Claims, week ended 2/27 – expected down 20,000

Continuing Jobless Claims, week ended 2/20 expected down 17,000

4^th Qtr 2009 Productivity (Revised) and Unit Labor Costs – expected no change in productivity at 6.2% increase and expected no change in unit labor costs at -4.4%.

January Factory Orders – expected up 1.2% vs up 1.0% in December

January Pending Home Sales – expected up 1.7% vs December up 1.0%

Friday March 5, 2010

February Non Farm Payroll Report – expected 20,000 to 50,000 job losses and unemployment rate expected to increase to 9.8% from 9.7%. Hourly earnings expected to be up .2% which is no change from January.