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Mortgage Market in Review – December 22, 2014

Market Comment

Mortgage bond prices finished the week lower, which pushed rates slightly higher. Rates were under pressure from stronger than expected industrial production data Monday. This was tempered a bit Tuesday by continued downward pressure on oil prices and weaker than expected housing starts data. The headline consumer inflation reading was lower than expected but the core rate was in line with estimates. Janet Yellen set stocks on fire Wednesday afternoon and that continued into Thursday in which the DOW saw a 421-point gain. The Fed indicated they will be “patient” with any future interest rate increases. Lower than expected weekly jobless claims added fuel to the stock rally at the expense of Treasuries and mortgage-backed securities. Mortgage interest rates finished the week worse by approximately 1/8 to 1/4 of a discount point.

LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
Existing Home Sales Monday, Dec. 22,
10:00 am, et
5.22m Low importance.  An indication of mortgage credit demand.  Significant weakness may lead to lower rates.
Treasury auctions begin Monday, Dec. 22,
1:15pm et
None Important. 2Y auction Monday, 5Y auction Tuesday, 7Y auction Wednesday.  Traders will watch the foreign demand for each offering.
Durable Goods Orders Tuesday, Dec. 23,
8:30 am, et
Up 0.3% Important.  An indication of the demand for “big ticket” items.  Weakness may lead to lower rates.
Personal Income and Outlays Tuesday, Dec. 23,
8:30 am, et
Up 0.2%,
Up 0.1%
Important.  A measure of consumers’ ability to spend.  Weakness may lead to lower mortgage rates.
PCE Core Inflation Tuesday, Dec. 23,
8:30 am, et
Up 0.1% Important.  A measure of price increases for all domestic personal consumption.  Weaker figure may help rates improve.
Q3 GDP Third Estimate Tuesday, Dec. 23,
8:30 am, et
Up 3.2% Important.  The aggregate measure of US economic production.  Weakness may lead to lower rates.
U of Michigan Consumer Sentiment Tuesday, Dec. 23,
8:30 am, et
93.2 Important.  An indication of consumers’ willingness to spend.  Weakness may lead to lower mortgage rates.
New Home Sales Tuesday, Dec. 23,
10:00 am, et
444k Important.  An indication of economic strength and credit demand.  Weakness may lead to lower rates.
Weekly Jobless Claims Wednesday, Dec. 24,
8:30 am, et
282k Important.  An indication of employment.   Higher claims may result in lower rates.

PCE

The US Department of Commerce’s Bureau of Economic Analysis releases the core PCE price index.  The report provides the average increase in costs for personal consumption expenditures.  PCE is significant in that the Fed uses it in determining inflation as opposed to the prior use of the consumer price index.  The PCE includes the price of spending for and on behalf of households.  This includes health care spending paid for a household by a business.  The CPI only reflects out of pocket expenses paid directly by consumers.  The Fed noted recently that inflation is in check.  However, data can surprise the financial markets from time to time.

Mortgage interest rates will likely spike higher in the short term if the PCE core reading is higher than expected.  A reading in line with expectations will likely help rates stay in check.

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