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Mortgage Market in Review – December 12, 2016

Market Comment

Mortgage bond prices finished the week near unchanged to slightly lower despite some large swings early in the week. Rates started higher Monday morning tied to reports of strength in the Chinese economy and rising oil prices. Some of the losses were erased Tuesday as productivity was weaker than expected. Stock strength was a factor throughout the week as the DOW hit record levels. Weekly jobless claims rose 258K as expected. The figure stayed below the 300K mark for another month and signaled the job market remained solid. Stronger than expected consumer sentiment data Friday pressured rates a little higher. Sentiment came in at 98 versus the expected 94.8 mark. Mortgage interest rates finished the week higher by approximately 1/8 of a discount point.


LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
Producer Price Index Wednesday, Dec. 14,
8:30 am, et
Up 0.3%,
Core up 0.1%
Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates.
Retail Sales Wednesday, Dec. 14,
8:30 am, et
Up 1.2% Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
Industrial Production Wednesday, Dec. 14,
9:15 am, et
Up 0.4% Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates.
Capacity Utilization Wednesday, Dec. 14,
9:15 am, et
75.3% Important. A figure above 85% is viewed as inflationary. Weaker figure may lead to lower rates.
Fed Meeting Adjourns Wednesday, Dec. 14,
2:15 pm, et
25 basis point hike Important. Most expect the Fed to change rates. Volatility may surround the adjournment of this meeting.
Consumer Price Index Thursday, Dec. 15,
8:30 am, et
Up 0.2%,
Core up 0.1%
Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates.
Weekly Jobless Claims Thursday, Dec. 15,
8:30 am, et
252K Important. An indication of employment. Higher claims may result in lower rates.
Philadelphia Fed Survey Thursday, Dec. 15,
10:00 am, et
6.8 Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.
Housing Starts Friday, Dec. 16,
8:30 am, et
1350K Important. A measure of housing sector strength. Weakness may lead to lower rates.

Fed Rate Hike

The Fed is expected to raise rates at the meeting this week. The good news is most analysts see the move as already priced into trading. We saw rates push higher the past month as a result. The Fed will likely make the case that the employment situation remains on solid footing. Over 180,000 jobs continued to be added each month. New York Fed President Dudley stated, “Assuming the economy stays on this trajectory, I would favor making monetary policy somewhat less accommodative over time by gradually pushing up the level of short-term interest rates.”The big unknown now is how fiscal policy will work within the president-elect’s goals of reducing taxes and regulations while increasing spending on infrastructure. There is much uncertainty about the future of the economy. A cautious approach to lock decisions is wise.


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