Mortgage investors gave this morning's slightly stronger-than-expected 2.4% gain in the July Factory Orders report little more than a passing glance. Vehicle orders climbed last month by the most since January 2003, rebounding from a slump caused by supply disruptions linked to the earthquake in Japan. Stripping out the outsized gain in the transportation component of this data - so called "core" factory orders posted a very modest 0.9% gain for the month.



In a separate report the Mortgage Bankers of America said their mortgage application survey for the week ended August 26th showed overall mortgage loan demand slumped 9.6% on a week-over-week basis. Refinance requests fell by 12.2% while purchase applications edged 0.9% higher.



The contract rate for 30-year fixed rate mortgages finished the week at 4.32%, down 7basis-points from the prior week, down 13 basis-points from the month ago mark, and down 11 basis-points from this time one-year ago. Refinance requests represented eight out of 10 loan applications taken last week.

Normally the most scrutinized report of the month, the August jobs report takes on added importance given Fed Chairman Bernanke's recent public comments stressing how crucial it is for the long-term health of the economy that the national jobless rate fall below 9.0% (as of the July report the national jobless rate stands at 9.1%). Many analysts believe Friday's nonfarm payroll figures will play a major role in determining what, if any, new economic stimulus plans are forthcoming from the central bank.



An August jobless rate of 9.1% or higher will tend to support the prospects for steady to fractionally lower mortgage interest rates while a jobless rate of 9.0% or lower will almost certainly cause investors to nudge mortgage rates higher. It is a close call - but for the time being I suggest you remain in your fox holes with your helmets on and your head down until/unless the Fannie Mae 4.0% 30-year mortgage-backed security can muster strong enough upward momentum to close above a price of 103.875. As I mentioned in this space last Friday -- it will not take much in the way of an inflation spike or signs of an accelerating economic recovery to prompt an ugly change in your investors' rate sheets



FYI: The mortgage market will operate on a normal schedule on Friday, September 2nd and will be closed on Monday, September 5th for the Labor Day Holiday.

This morning's stronger-than-expected July Personal Income and Spending report is just the latest in a series of various reports suggesting the economy has not yet fallen into the black hole of a recession. The Commerce Department said spending rose 0.8% last month - it fastest pace in the past five months. Income grew 0.3% on a month-over-month basis and the core rate of inflation as measured by the personal consumption expenditure component of the index posted a modest 0.2% increase.
This morning's data is actually little more than background noise as mortgage investors brace for Friday morning's much more important August nonfarm payroll figures.



Normally the most scrutinized report of the month, the August jobs report takes on added importance given Fed Chairman Bernanke's recent public comments stressing how crucial it is for the long-term health of the economy that the national jobless rate fall below 9.0% (as of the July report the national jobless rate stands at 9.1%). Many analysts believe Friday's nonfarm payroll figures will play a major role in determining what, if any, new economic stimulus plans are forthcoming from the central bank.



An August jobless rate of 9.1% or higher will tend to support the prospects for steady to fractionally lower mortgage interest rates while a jobless rate of 9.0% or lower will almost certainly cause investors to nudge mortgage rates higher. It is a close call - but for the time being many suggest you remain in your fox holes with your helmets on and your head down until/unless the Fannie Mae 4.0% 30-year mortgage-backed security can muster strong enough upward momentum to close above a price of 103.875. It will not take much in the way of an inflation spike or signs of an accelerating economic recovery to prompt an ugly change in your investors' rate sheets



FYI: The mortgage market will operate on a normal schedule on Friday, September 2nd and will be closed on Monday, September 5th for the Labor Day Holiday.

Many market participants had hoped Mr. Bernanke would serve up the financial equivalent of a juicy steak hot-off-of-the-grill this morning -- but instead he offered nothing more than a bowl of lukewarm Cream-of-Wheat.



Federal Reserve Chairman Ben Bernanke stopped short of signaling further immediate action from the central bank to boost economic growth during his much hyped keynote speech at a global economic conference in Jackson Hole, Wyoming earlier this morning. His position disappointed many and matched the minority of market analysts' expectations.



The furthest Mr. Bernanke chose to go out on a professional limb was to solemnly pronounce that he believes reducing the record high level of workers who have been unemployed for six months or more would help achieve stronger U.S. economic growth. The best Mr. Bernanke had to offer market participants was his commitment to talk about additional ideas to stimulate economic growth with the other members of the Open Market Committee at an extended two-day gathering beginning on Tuesday, September 20th. The whole thing was decidedly mortgage interest rate neutral.



In terms of economic news the Commerce Department reported earlier this morning the economy grew slower than previously thought during the second-quarter. Gross Domestic Product, a government guesstimate of the value of all the goods and services produced nationally, improved by 1.0% -- a downward revision to the government's first guess suggesting growth of 1.3%. The revision was generally in range of the performance level most mortgage investors had been anticipating rendering this report essentially "toothless" with respect to its impact on the current trend trajectory of mortgage interest rates.



Looking ahead to the coming week several important economic reports will be featured starting with Monday's Personal Income and Spending data from July followed by Thursday's measure of activity in the manufacturing sector to be delivered in the form of the July Institute of Supply Management's Manufacturing Index and culminating in Friday's August Nonfarm Payroll report.



The risk is that one or more of these reports prove stronger-than-expected - a condition should it occur - almost certain to cause mortgage investors to nudge interest rates higher. Heads up - this is definitely not time to get complacent with your pipeline risk management strategies. It will not take much in the way of an inflation spike or signs of an accelerating economic recovery to prompt an ugly change in your investors' rate sheets.



FYI: The mortgage market will operate on a normal schedule on Friday, September 2nd and will be closed on Monday, September 5th for the Labor Day Holiday.

Different day - same story.



It is another very slow start to the trading day in the mortgage market. Mortgage investors are putting the finishing touches on their risk management strategies in front of tomorrow morning's much anticipated speech by Fed Chairman Bernanke.
Many market participants are hoping Mr. Bernanke will use his time at the podium to announce a new monetary policy stimulus program designed to avert the immediate threat of another recession will soon be forthcoming from the Fed. It is far more likely he will discuss the various methods the Fed has at its immediate disposal to provide additional lift to the struggling economy - and he will reaffirm his commitment to act decisively should the need arise -- but Mr. Bernanke will probably stop short of making any "big bang" announcement.


If this assessment proves accurate -- look for the stock market to sell-off while mortgage interest rates move sideways to perhaps fractionally lower. Mr. Bernanke is scheduled to begin his address at 10:00 a.m. ET.



The Labor Department reported earlier this morning that the number of Americans standing in line to file first-time claims for government unemployment benefits jumped a stronger-than-expected 5,000 to 417,000 during the week ended August 20th. A Department spokesperson said at least 8,500 new filings last week were attributable to the Verizon strike. Even without the distortions created by the Verizon strike - the data continues to clearly show labor market conditions remain grim.



Uncle Sam will wrap-up this week's three-part Treasury debt auction series with the sale of $29 billion worth of 7-year notes this afternoon. Early indications suggest the auction will draw solid demand from foreign and domestic investors alike. Investors have been migrating to the longer dated securities as they grab for yield following last month's commitment by the Fed to keep short-term interest rates near zero for at least two years. If this assessment proves accurate, this event will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates.

It is another very slow start to the trading day in the mortgage market. Mortgage investors are putting the finishing touches on their risk management strategies in front of Friday's much anticipated speech by Fed Chairman Bernanke.



Many market participants are hoping Mr. Bernanke will use his time at the podium to signal a new monetary policy stimulus designed to avert the threat of another recession. It is far more likely he will discuss the various methods the Fed has at its immediate disposal to provide additional lift to the struggling economy - and he will reaffirm his commitment to act decisively should the need arise -- but Mr. Bernanke will probably stop short of making any "big bang" announcement. If this assessment proves accurate -- look for the stock market to sell-off while mortgage interest rates move sideways to perhaps fractionally lower.



The Commerce Department announced earlier today that orders for goods manufactured to last 3-years or more posted a 4.0% gain in July on a huge jump in transportation equipment - particularly aircraft where orders were up 14.6%. Things were not nearly so heady for the component of the report that excluded transportation orders -where the July gain was a very modest 0.7%. Overall, the data continues to reflect continued softness in broad sections of the economy.



As they do every Wednesday, the Mortgage Bankers of America have released their mortgage application survey data for the week ended August 19, 2011. Overall loan demand declined 2.4% from the previous week with purchase money requests dropping 5.7% and refinance requests down by 1.7%.



The contract rate for 30-year fixed rate mortgages finished at 4.39%, up 7 basis-points from a week ago, down 18 basis-points from four weeks ago, and down by 16 basis-points from a year-ago. Refinance applications accounted for eight out of every ten applications taken last week.



Mortgage investors are currently doing nothing more than milling around with their hands in their pockets waiting for the results of this afternoon's 1:00 p.m. ET sale of $35 billion of 5-year notes. Early indications suggest the auction will draw solid demand from foreign and domestic investors alike. If this assessment proves accurate, mortgage interest rates will not likely move much in either direction. Only in the off-chance demand is so weak at today's debt sale Uncle Sam finds it necessary to "sweeten-the-pot" by offering a notably higher yield on today's offering of 5-year notes will mortgage investors feel particularly compelled to push rates upward from current levels.

Mortgage investors are putting the finishing touches on their risk management strategies in front of this week's three-part, $99 billion Treasury debt auction. The process will kick-off tomorrow with $35 billion of 2-year notes on the auction block followed by $35 billion of 5-year notes on Wednesday and concluding on Thursday with $29 billion of 7-year notes. The yields on these securities are flirting with 60-year lows -- so reasons for investors to step up and buy will need to be very compelling. If demand is soft at this week's government debt sale look for the upward pressure on mortgage interest rates to increase.



The biggest event on this week's schedule is Fed Chairman Ben Bernanke's Friday morning address to attendees at the Fed's global banking conference in Jackson Hole, Wyoming. Bernanke is expected to acknowledge his disappointment over the pace of economic growth -- but the probabilities remain low he'll provide any new guidance on a new round of monetary stimulus. If my assessment proves accurate, it's a perfect recipe for a churning, range-bound trading environment for both stocks and bonds. Heads up.

There is nothing on the economic calendar for mortgage investors to chew on.
What little trading occurs in the mortgage market today will be largely dictated by trading activity in the stock markets. Higher stock prices will likely create a little upward pressure on mortgage rates while lower stock market prices will tend to be supportive of steady to perhaps fractionally lower rates.



Looking ahead to next week the headliner event will be Fed Chairman Ben Bernanke's key-note address Friday morning at 9:00 a.m. CT on the "Near- and Long-term Prospects for the U.S. Economy." Mr. Bernanke will be speaking at the Federal Reserve Bank of Kansas City Economic Symposium in Jackson Hole, Wyoming.



There are some analysts suggesting the Fed Chairman will publicly announce another round of central bank sponsored fiscal stimulus in the form of "QE3." The majority of major Wall Street investment houses are putting the probabilities this generally mortgage interest rate unfriendly event will occur at less than 40%. Most of these market participants believe the politics surrounding such a move together with major questions regarding the true effectives of "QE2" make it unlikely the Fed will try to deploy the same strategy a third time.



Also on tap for the coming week will be a $99 billion, three-part Treasury debt auction scheduled to run from Tuesday through Thursday. July New Home Sales numbers on Tuesday, July Durable Goods Orders on Wednesday and revised second-quarter Gross Domestic Product numbers on Friday will make up the total of the coming week's rather lackluster battery of macro-economic news.

The Dow Jones Industrial Average took a 500+ point nosedive earlier this morning as fears over growing signs of a global economic slowdown sent capital scurrying for the relative safe-haven of dollar denominated assets like Treasury debt obligations and mortgage-backed securities.



While the infusion of additional buyers supporting steady to lower mortgage interest rates is certainly welcome - bear-in-mind these "safe-haven" investors are not acquiring Treasury debt obligations and mortgage-backed securities with the intent of holding these assets in their portfolio for an extended period of time. The majority of these "flight-to-quality" investors will dump their "safe-haven" investments like a hot potato the second the last panicked seller in the stock markets has been indentified and satisfied.



Morgan Stanley's index of global stocks is currently posting a forward-earnings ratio for MSCI index of 11.7 versus a 22-year average of 16.4. In other words, these riskier assets are approaching such heavily discounted values any perceived sign(s) of stabilization for global economic growth will send professional investors the world over into a swirl of activity redeploying capital back into riskier but higher yielding investments like stocks. The process, when it occurs, will create a significant amount of selling pressure in both the Treasury and mortgage-backed securities market.



The days of support for steady to fractionally lower mortgage interest rates from international "safe-haven" buyers could be numbered. With 8 out of every 10 loans in most pipelines representing refinance requests - it is critically important borrowers are aware how quickly their funding sources may dry up - even though all the current underlying government economic reports suggest rates should be moving yet lower.

Mortgage investors gave this morning's Labor Department report indicating inflation at the nation's factory gates rose at a stronger-than-expected pace little more than a passing glance.


The specifics of the July Producer Price Index showed overall prices were higher by 0.2% following a 0.4% drop in June. The core rate of inflation at the producer level, a value which strips out the more volatile food and energy costs, rose by 0.4% -- double most economists' expectations and the largest single monthly increase for this measure of inflation since January.



A jobless rate of 9.0+% continues to take a major toll on salaries and wages which in-turn crimps consumer spending. As long as the labor market remains weak -- it is highly unlikely businesses will find the pricing power necessary to pass their rising raw material costs through to consumers.



If tomorrow morning's 8:30 a.m. ET July Consumer Price Index confirms this assessment -- the report will tend to be supportive of steady to perhaps fractionally lower mortgage interest rates. In the off-chance the core rate of the July Consumer Price Index posts a reading of 0.3% or higher -- expect mortgage investors to respond by pushing rates higher in tomorrow's early going.



As they do every Wednesday, the Mortgage Bankers of America have released their weekly mortgage application survey numbers for the five-business-day period ended August 12th. The composite index gained 4.1% from the previous week, driven entirely by a huge surge in refinance requests. Refinance loan demand was up 8.0% on a week-over-week basis while request for purchase money mortgages fell 9.1%.
The contract rate for 30-year fixed-rate mortgages finished the week at 4.32%, down 5basis-points from the prior week, down 22 basis-points from the month-ago mark, and down 28 basis-points from the year-ago level.



Refinance applications accounted for eight of every ten loan applications taken last week by lenders across the country.

TUESDAY, AUGUST 16

I WAS OUT OF THE OFFICE YESTERDAY SO HERE IS YESTERDAY'S MARKET UPDATE:

Second verse - same as the first.


The mortgage market continues to idle as investors watch trading action in the stock market for clues on where to set their interest rates. Higher stock prices will tend to drive mortgage interest rates fractionally higher while lower stock prices will probably prove supportive of steady to perhaps fractionally lower mortgage interest rates.


Recent economic data suggest second-half economic growth will be softer than first thought. Unemployment has remained stuck near 9.0%, raising speculation the Federal Reserve may have to be more aggressive in its monetary policy in order to revive the labor market. Inflation data on Wednesday and Thursday will give Fed Chairman Bernanke and his fellow central bankers a sense of how much fuel they can add to the economy's growth engine without awakening the inflation beast.


Here's the "so what" factor attached to all this mumbo-jumbo. A key reason stocks have rebounded so aggressively from a nearly 20% slump was the Fed's decision to make an unprecedented pledge to keep their benchmark interest rates near zero for another two years while they explore other options for breathing life back into the economy.


If the Fed is successfully in their efforts to rekindle job creating economic growth - stocks will likely move notable higher from current levels at the expense of higher mortgage interest rates. On the other hand, if the Fed fails in their effort to revive the sputtering economic growth engines - stocks will almost certainly turn notably lower. A major sell-off in the stock markets will undoubtedly prove supportive of the prospects for steady to perhaps fractionally lower mortgage rates.


the 11,200 price level as indexed to the Dow Jones Industrial Average represents the demarcation line for mortgage interest rates. As long as the DJIA trades above the 11,200 mark -- it will likely prove difficult, if not impossible for mortgage interest rates to make a sustained move to notably lower levels.
Today's economic news did nothing but confirm mortgage investors' current expectations for slow growth - but not so slow the economy slips into another recessionary spiral.


July Industrial Production increased a stronger-than-expected 0.9% after an upwardly revised 0.4% gain in June. Capacity Utilization - a general measure of slack in the manufacturing sector - rose to 77.5% in July from 76.9% in June. This is the highest level of capacity utilization since August 2008. Until/unless the capacity utilization rate exceeds 80.0% on a sustained month-over-month basis mortgage investors will not be concerned about the potential of inflation producing production bottlenecks developing within the economy.



To no one's surprise, the Commerce Department reported this morning that housing starts fell 1.5% in July. Building permits, a proxy for future construction, declined 3.2% on a month-over-basis. Mortgage investors gave this data nothing more than a passing glance.

The mortgage market is currently idling as investors watch trading action in the stock market for clues on where to set their interest rates.


Higher stock prices will tend to drive mortgage interest rates fractionally higher while lower stock prices will probably prove supportive of steady to perhaps fractionally lower mortgage interest rates.


Recent economic data suggest second-half economic growth will be softer than first thought. Unemployment has remained stuck near 9.0%, raising speculation the Federal Reserve may have to be more aggressive in its monetary policy in order to revive the labor market.


Inflation data on Wednesday and Thursday will give Fed Chairman Bernanke and his fellow central bankers a sense of how much fuel they can add to the economy's growth engine without awakening the inflation beast.


Here's the "so what" factor attached to all this mumbo-jumbo. A key reason stocks have rebounded so aggressively from a nearly 20% slump was the Fed's decision to make an unprecedented pledge to keep their benchmark interest rates near zero for another two years while they explore other options for breathing life back into the economy.


If the Fed is successfully in their efforts to rekindle job creating economic growth - stocks will likely move notable higher from current levels at the expense of higher mortgage interest rates.


On the other hand, if the Fed fails in their effort to revive the sputtering economic growth engines - stocks will almost certainly turn notably lower.


A major sell-off in the stock markets will undoubtedly prove supportive of the prospects for steady to perhaps fractionally lower mortgage rates.


The "experts" believe that the 11,200 price level as indexed to the Dow Jones Industrial Average represents the demarcation line for mortgage interest rates.


As long as the DJIA trades above the 11,200 mark -- it will likely prove difficult, if not impossible for mortgage interest rates to make a sustained move to notably lower levels.


Stay Tuned...in the meantime - enjoy the ride and lock em if ya got em!

Who's afraid of a little 'ol credit downgrade on the sovereign debt of the United States?


The majority of investors in the global credit markets seem to have completely shrugged the whole thing off. Foreign and domestic investors alike proved willing to be aggressive buyers of Uncle Sam's 10-year notes at yesterday's Treasury auction. Buying demand was strong enough to push the yield on these securities down to a decade-long low of 2.092%.


The Treasury Department will complete this week's regularly scheduled three-part debt sale this afternoon when they auction off $16 billion worth of 30-year bonds. I suspect demand for today's offering may not be as robust as it was for Tuesday's 3-year notes and yesterday's 10-year notes. If this morning's 200+ point rally for the Dow Jones Industrial Average is sustained through the conclusion of the Treasury auction at 1:00 p.m. ET - it is likely the yield on the 30-year Treasury bond will edge fractionally higher - a condition almost sure to cause mortgage interest rates to creep fractionally higher as well.


The Labor Department reported earlier this morning the number of Americans claiming new jobless benefits dropped 7,000 to a seasonally adjusted 395,000 - the lowest level for this measure of activity in the job market in more than four months. While still elevated, the level of weekly claims for government funded unemployment benefits has improved markedly since hitting a peak of 478,000 during the last week of April. Hiring remains exceptionally weak by historical standards for this stage of the economic recovery. Economists generally agree the U.S. needs to add at least 125,000 jobs a month just to keep up with the growth of the labor force - and double that amount to make a significant dent in the nation's 9.1% unemployment rate.

Amazing. Just-four days after the first-ever downgrade of America's sovereign debt rating to AA+ from AAA -- dollar denominated Treasury debt obligations and their mortgage-backed security cousins are enjoying "rock-star" status in the global credit markets.


The current rally in the credit markets in general - and the mortgage market specifically - is being driven singularly by the fact the rest of world - especially Europe -- is coming apart at the financial seams.


Rumors are circulating around the globe that France will soon loose their AAA sovereign debt rating as the debt crisis that began in Greece continues to infect an increasing number of the other 16 countries that share the euro.


Rick Rieder, chief investment officer at BlackRock Inc., succinctly summarized the stunning power behind this week's rally in the Treasury and mortgage-backed securities market when he said, (I'm paraphrasing) "Whether rated AA+ or not, the world still thinks Treasury debt obligations are AAA rated."

The "so what factor" here is significant. As long as the this AAA global perception of dollar denominated assets remains unshaken - and as long as Europe continues to stagger under the shifting strains of what will likely prove to be one of history's most crippling sovereign debt crisis - the support mechanism for extraordinarily low mortgage interest rates will almost certainly remain in place. If additional reasons develop for the global investment community to question America's ability to repay her debts in a timely manner -- the trend trajectory of mortgage interest rates will undoubtedly reverse course in the blink of an eye. But that is a worry for another day.