As I have mentioned repeatedly (too many times to link), the roller coaster ride of mortgage rates will get pretty wild this week with a slew of news coming through and today is the beginning.
This morning's ADP report came in strong and that may weigh on the Fed decision later today as they certainly have to be wondering if another rate cut is a smart move, especially after being a little embarrassed last week with an emergency cut to minimize a financial meltdown created by a "rogue trader".
Why? The ADP, while not a very accurate predictor, is a good gauge as to how the Jobs Jamboree this Friday will turn out. As strong as it was, the jobs news is expected to beat expectations now and that spells bad news for mortgage rates.
The good news in that report is that it is time for the Fed to rethink their decision due out this afternoon. They may very well decide not to cut rates or only cut 25bp on the heels of the ADP report. That would be good for bonds as it will likely destroy the stock market like last month.
Tomorrow continues the ride with the release of the Personal Consumption Expenditures Index (PCE). Since this is the Fed's favorite gauge of inflation, and since it has been ticking higher lately, it will likely move the markets with its release. It may also leave the Fed embarrassed again. Remember that they said inflation would remain a non-issue so long as the public kept faith in them and that faith is dwindling.
Then, of course, is the Friday Jobs Jamboree, where a whole plague of data will hit the airwaves showing what's happening on the job front and, more importantly, the concerns surrounding wage-based inflation.
As you can see, make sure your seatbelts are fastened because this ride could be a rough one, or even a freefall for mortgage bonds. See you on the other side!
Robert - I could not agree with you more. For months now (actually going back to when the "sub-prime" mess got going) the Fed has said that inflation was a greater concern than the credit problems caused by a housing market correction (or more accurately a housing mortgage correction).
But they recently reacted (over-reacted?) and I just do not see what has fundamentally changed in the economy.
Your overview of upcoming reports provides a great summary for anyone interested in helping their clients know what is going on before it hits the fan. Great post.
Posted by: Sean Purcell | January 30, 2008 at 09:30 AM