Market Comment
Mortgage bond prices fell last week
pushing rates higher. The Fed minutes
from the last meeting showed concerns of
downside economic risk coupled with
continued housing market weakness.
However, the Fed indicated the recent
easing seemed unlikely to fan inflation,
which generally bodes well for bonds.
Weaker than expected trade data helped
the dollar improve slightly making
dollar-denominated securities such as
mortgage bonds more attractive to
investors. For the week, interest rates
on government and conventional loans
rose by about 1/8 of a discount point.
The consumer price index data Wednesday
will be the most important event this
week. Industrial production, capacity
use, housing starts, Fed "beige book",
and leading economic indicators data
will also be important.
LOOKING AHEAD
|
Economic
Indicator |
Release
Date & Time |
Consensus
Estimate |
Analysis |
|
Industrial Production |
Tuesday, Oct. 16,
9:15 am, et
|
Up 0.1%
|
Important. A measure of
manufacturing sector strength.
Weakness may lead to lower
rates.
|
|
Capacity Utilization |
Tuesday, Oct. 16,
9:15 am, et
|
82.2%
|
Important. A figure above 85% is
viewed as inflationary. Weakness
may lead to lower rates.
|
|
Consumer Price Index |
Wednesday, Oct. 17,
8:30 am, et
|
Up 0.2%,
Core up 0.2%
|
Important. A measure of
inflation at the consumer level.
Lower than expected increases
may lead to lower rates.
|
|
Housing Starts |
Wednesday, Oct. 17,
8:30 am, et
|
Down 3.5%
|
Important. A measure of housing
sector strength. Larger than
expected decreases may lead to
lower rates.
|
|
Fed "Beige Book" |
Wednesday, Oct. 17,
2:00 pm, et
|
None
|
Important. This Fed report
details current economic
conditions across the US. Signs of
weakness may lead to lower
rates.
|
|
Leading Economic Indicators |
Thursday, Oct 18,
10:00 am, et
|
Up 0.4%
|
Important. An indication of
future economic activity. A
smaller increase may lead to
lower rates.
|
|
Philadelphia
Fed Survey |
Thursday, Oct 18,
12:00 pm, et
|
None
|
Moderately important. A survey
of business conditions in the
Northeast. Weakness may lead to
lower rates.
|
Inflation Data
The mortgage bond market received mixed
inflation data last week. The producer
price index, a major gauge of inflation
at the producer level, rose a surprising
1.1% in September. This was
significantly higher than the expected
0.4% increase. However, the core rate,
which excludes volatile food and energy,
rose 0.1%. This figure was weaker than
the expected 0.2% increase. Mixed
inflation signs do not generally bode
well for mortgage bonds. The lower than
expected core producer price figure
helps reinforce the belief that the Fed
easing did little to fan inflation.
However, the higher than expected
producer price figure supports the
opposite conclusion. With the mixed data
and the recent Fed minutes showing
inflation remains contained, this week’s
consumer price index may carry some
additional weight.
If future data echoes that of the core
producer price data, then it is very
likely mortgage interest rates will
remain the same or could even push
lower. However, if the consumer price
index echoes the producer price index
increase the fear of inflation may
increase pushing rates higher. Be aware
that floating into the consumer price
release this week is risky. The good
news is that mortgage interest rates
currently are historically favorable. It
is a great time to take advantage of
rates at the current levels. |
