Monday Market Update

Overall, the economic data came in pretty close to expectations this week, and Greece successfully reached a debt deal with private bondholders. With a lack of surprises in the economic news, mortgage rates ended the week nearly unchanged.

While it was a little stronger than expected, the important monthly Employment report had little impact on mortgage rates. Against a consensus forecast of 200K, the economy added 227K jobs in February, and revisions to prior months added an additional 61K jobs. The Unemployment Rate remained at 8.3%, as expected. Average Hourly Earnings, a proxy for wage growth, increased at a 1.9% annual rate. With gains above 200K for the first three months of the year, the recent pickup in job growth and the decline in Jobless Claims reflect solid improvement in the labor market.

Greece took a necessary step along its path to receive a much needed financial aid package. Private bondholders agreed to the proposed Greek bond swap deal, which will help reduce its debt burden. Without the deal, Greece was at risk of a potentially disastrous full default on its debt, which may have forced it to leave the European Union.

The big news next week will be Tuesday's Fed meeting. Investors will be trying to determine the likelihood of additional Fed easing. The most significant economic data next week will be the monthly inflation reports. The Producer Price Index (PPI) focuses on the increase in prices of "intermediate" goods used by companies to produce finished products and will come out on Thursday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Friday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, Retail Sales will be released on Tuesday. Retail Sales account for about 70% of economic activity. Industrial Production, Consumer Sentiment, Import Prices, Philly Fed and Empire State will round out a busy schedule. In addition, there will be Treasury auctions on Monday, Tuesday, and Wednesday.

Copyright @ 2012 MBSQuoteline

Monday Market Update :: What's going on with Greece...

With little US economic news this week, investors focused most of their attention on Europe, where Greece is attempting to avoid a debt default. A lack of progress in Greece late in the week caused a minor flight to safety, and mortgage rates ended slightly lower than last week.

For most of the week, it appeared that Greek officials were on track to deliver a package of austerity measures required for Greece to receive additional aid. The negotiations took an unexpected step backward on Friday, however, as Greek political leaders agreed on an austerity package on Thursday, but European Union (EU) officials stated that Greece will not receive additional aid until the Greek Parliament passes the package. Given the resistance among the Greek people, this is not a sure thing, and it extends the uncertainty about whether Greece will be able to avoid a debt default. As a result, investors shifted to relatively safer assets, including US mortgage-backed securities (MBS), which helped mortgage rates and hurt stocks.

In a light week for US economic data, the Jobless Claims report stood out. Weekly Jobless Claims unexpectedly dropped to 358K. Following several years of readings consistently above 400K, weekly claims have been mostly under 400K over the last couple of months. In the past, readings in this range have been consistent with an improving labor market. In January, the Unemployment Rate dropped to the lowest level since February 2009, and the recent Jobless Claims reports provide additional evidence that the labor market is moving in the right direction.

The most significant economic data next week will be the monthly inflation reports. The Producer Price Index (PPI) focuses on the increase in prices of "intermediate" goods used by companies to produce finished products and will come out on Thursday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Friday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, Retail Sales will be released on Tuesday. Retail Sales account for about 70% of economic activity. Industrial Production, another important indicator of economic growth, will come out on Wednesday, along with the detailed FOMC Minutes from the January 25 Fed meeting. Housing Starts will be released on Thursday. Import Prices, Philly Fed and Empire State will round out the schedule.

Copyright @ 2012 MBSQuoteline