Market Comment

Mortgage bond prices rose last week applying downward pressure to mortgage interest rates. Trading was positive the beginning of the week amid few economic releases. Unfortunately record high oil prices the latter portion of the week eroded some of the earlier improvements. High energy costs often increase inflationary pressures which do not generally bode well for bonds.

For the week, interest rates on government and conventional loans fell by about 1/8 of a discount point.

The Fed meeting Wednesday will be the most important event this week. Consumer confidence, GDP, ECI, income, outlays, ISM Index, employment, and factory orders data will also be important.

Looking Ahead

Economic Indicator	Release Date & Time	Consensus Estimate	Analysis
Consumer Confidence	Tuesday, Oct. 30, 10:00 am, et	100.0	Important. An indication of consumers' willingness to spend. Weakness may lead to lower mortgage rates.
Q3 Advance GDP	Wednesday, Oct 31, 8:30 am, et	Up 3.1%	Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
Q3 Employment Cost Index	Wednesday, Oct 31, 8:30 am, et	Up 0.9%	Very important. A measure of wage inflation. Weakness may lead to lower rates.
Fed Meeting Adjourns	Wednesday, Oct 31, 2:15 pm, et	25 basis point cut	Important. Most expect the Fed to cut rates. Volatility may surround the adjournment of this meeting.
Personal Income and Outlays	Thursday, Nov. 1, 8:30 am, et	Income up 0.4%, Outlays up 0.2%	Important. A measure of consumers' ability to spend. Weakness may lead to lower mortgage rates.
ISM Index	Thursday, Nov. 1, 10:00 am, et	52.0	Important. A measure of manufacturer sentiment. A larger decline may lead to lower mortgage rates.
Employment	Friday, Nov. 2, 8:30 am, et	Unemp. @ 4.7%, Payrolls +90k	Very important. An increase in unemployment or weakness in payrolls may bring lower rates.
Factory Orders	Friday, Nov. 2, 10:00 am, et	Up 1.0%	Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.

Easing Expected

All eyes and ears will be on the Federal Reserve this week. The Fed is expected to cut rates again in continuation of the recent rate reductions. Notes from the last meeting indicated, "with economic growth likely to run below its potential for a while and with incoming inflation data to the favorable side, the easing of policy seemed unlikely to affect adversely the outlook for inflation." However, the Fed finds itself in a difficult situation. The rate cuts are intended to help the economy avoid a recession. The danger is that the rate cuts could ignite inflationary fears. Inflation is already a concern with record high oil prices.

Keep in mind that a Fed rate cut does not automatically mean mortgage interest rates will improve. The Federal Reserve has direct control over the level of short-term interest rates. The Fed's influence over longer-term interest rates is less certain.

Mortgage interest rates remain very favorable. A cautious approach to float/lock decisions is prudent heading into the Fed meeting this week. Be prepared for potential market volatility.

Copyright 2006. All Rights Reserved. Mortgage Market Information Services, Inc. www.ratelink.com  The information contained herein is believed to be accurate, however no representation or warranties are written or implied. PERL Mortgage is an Illinois residential mortgage licensee and equal housing opportunity lender.