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Mortgage Market in Review – August 17, 2015

Market Comment

Mortgage bond prices finished the week near unchanged holding mortgage rates steady. Rates rose Monday amid stock strength as the DOW was up over 200 points. Rates fell Tuesday when stocks reversed course. The biggest shock to financial markets came early in the week with the devaluing of the Chinese Yuan. The Bank of China allowed the yuan to depreciate by 1.9% against the US dollar on Tuesday. Global stock markets sank on the news and traders purchased bonds pushing mortgage rates lower. Trade was volatile, a trend that is likely to continue. Mortgage interest rates finished the week better by about 1/8 of a discount point.


LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
NAHB Housing Index Monday, Aug. 17,
10:00 am, et
61 Moderately Important.  A measure of single-family housing.  Weakness may lead to lower mortgage rates.
Housing Starts Tuesday, Aug. 18,
8:30 am, et
1168K Important.  A measure of housing sector strength.  Weakness may lead to lower rates.
Consumer Price Index Wednesday, Aug. 19,
8:30 am, et
Up 0.3%,
Core up 0.1%
Important.  A measure of inflation at the consumer level.  Weaker figures may lead to lower rates.
Fed Minutes Wednesday, Aug. 19,
2:00 pm, et
None Important.  Details of the last Fed meeting will be thoroughly analyzed.
Weekly Jobless Claims Thursday, Aug. 20,
8:30 am, et
172K Important.  An indication of employment.   Higher claims may result in lower rates.
Existing Home Sales Thursday, Aug. 20,
10:00 am, et
5.38M Low importance.  An indication of mortgage credit demand.  Significant weakness may lead to lower rates.
Philadelphia Fed Survey Thursday, Aug. 20,
10:00 am, et
6.2 Moderately important.  A survey of business conditions in the Northeast.  Weakness may lead to lower rates.
Leading Economic Indicators Thursday, Aug. 20,
10:00 am, et
Up 0.4% Important.  An indication of future economic activity.  A smaller increase may lead to lower rates.

Consumer Price Index

The Consumer Price Index is widely accepted as the most important measure of inflation.  The CPI is a measure of prices at the consumer level for a fixed basket of goods and services.  The National Statistics Office and the Bureau of Agricultural Statistics of the Department of Agriculture collect price data for the computation of the CPI. Since it is an index number, it compares the level of prices to a base period.  By comparing the level of the index at two different points in time, analysts can determine how much prices have risen in that period.

 

Unlike other measures of inflation, which only factor domestically produced goods; the CPI takes into account imported goods as well.  This is important due to the ever-increasing reliance of the US economy upon imported goods.  Analysts primarily focus on the core rate of the CPI which factors out the more volatile food and energy prices.  Oil prices are always a concern from an inflation perspective.  Inflation, real or perceived, erodes the value of fixed income securities such as mortgage bonds.  Rates have a better chance of falling with lower than expected CPI figures.


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