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Mortgage Market in Review

 

Market Comment

Mortgage bond prices finished the week higher which put downward pressure on rates.  Trading was positive the first portion of the week with no data.  Federal Reserve Chair Janet Yellen’s testimony to Congress held no surprises. She continued to state that inflation remains softer than the Fed would like, that the slack in the labor market continues to diminish and that future policy decisions (read rate hikes) are data dependent.  The 247K weekly jobless claims were approximately as expected.  Producer prices rose 0.1% versus the expected 0.1% decline. The core, which excludes volatile food and energy, rose 0.1% versus the expected 0.2% increase.  Consumer prices were unchanged and the core rose 0.1%, which was near expectations.  We ended the week better by approximately 1/4 of a discount point.


LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
NAHB Housing Index Tuesday, July 18,
10:00 am, et
67 Moderately Important.  A measure of single family housing.  Weakness may lead to lower mortgage rates.
Housing Starts Wednesday, July 19,
8:30 am, et
1098K Important.  A measure of housing sector strength.  Weakness may lead to lower rates.
Philadelphia Fed Survey Thursday, July 20,
10:00 am, et
28 Moderately important.  A survey of business conditions in the Northeast.  Weakness may lead to lower rates.
Weekly Jobless Claims Thursday, July 20,
8:30 am, et
245K Important.  An indication of employment.   Higher claims may result in lower rates.
Leading Economic Indicators Thursday, July 20,
10:00 am, et
Up 0.2% Important.  An indication of future economic activity.  A smaller increase may lead to lower rates.
10-year Treasury TIPS Auction Thursday, July 20,
1:15 pm, et
None Important.  TIPS will be auctioned.  Strong demand may lead to lower mortgage rates.

Philadelphia Fed

Federal Reserve Banks were created to control the central banking system of the United States.  The banks are divided into 12 districts and facilitate the monetary system by moving currency in and out of circulation in accordance with the policies set by the Federal Open Market Committee.  The Reserve Banks handle check processing, hold cash reserves and make loans to depository institutions.  Each Reserve Bank regulates commercial banks in their district.  The twelve districts include Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.

 

The Philadelphia Fed report is a survey of manufacturing businesses in the Northeast region.  The report is valuable due to the timing.  It is released before the month is over and is the second regional report released.  While there are many other regional reports throughout the month the Philadelphia Fed report is considered to be one of the most valuable.  It has historically shown strong correlation with purchasing managers index data and therefore analysts give it considerable attention.

 

Be cautious heading into the economic data this week.  Thin summer trading conditions often lead to lackluster days of trading with minimal rate movements.  However, thin conditions also can result in some wild swings from time to time.  Understand the event risk before making overnight float/lock decisions.


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