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Mortgage Market in Review – August 18, 2014

Market Comment

Mortgage bond prices finished the week higher, which pushed rates lower. Weaker than expected data Wednesday morning helped rates improve. Retail sales were unchanged in July. Sales were expected to rise 0.2%. Retail sales data is important because 67% of Gross Domestic Product (GDP) comes from consumer spending. The report covers the prior month and is considered timely by market participants. Weekly jobless claims printed at 311k and continuing claims, a summation of all receiving benefits, at 2,544k. Economists expected claims at 305K and continuing claims at 2,523K. The headline figure was slightly higher than expected and somewhat rate-friendly. Mortgage interest rates fell by about 1/8 of a discount point for the trading week.

LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
Consumer Price Index Tuesday, 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.
Housing Starts Tuesday, Aug. 19,
8:30 am, et
908k Important.  A measure of housing sector strength.  Weakness may lead to lower rates.
Fed Minutes Wednesday, Aug. 20,
2:00 pm, et
None Important.  Details of the last Fed meeting will be thoroughly analyzed.
Weekly Jobless Claims Thursday, Aug. 21,
8:30 am, et
308k Important.  An indication of employment.   Higher claims may result in lower rates.
Existing Home Sales Thursday, Aug. 21,
10:00 am, et
5.03m Low importance.  An indication of mortgage credit demand.  Significant weakness may lead to lower rates.
Philadelphia Fed Survey Thursday, Aug. 21,
10:00 am, et
8.7 Moderately important.  A survey of business conditions in the Northeast.  Weakness may lead to lower rates.
Leading Economic Indicators Thursday, Aug. 21,
10:00 am, et
Up 0.2% 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. Record debt levels continue to weigh heavily upon the financial markets as well. 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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