Mortgage Market in Review – January 19, 2015

January 20, 2015
Market Comment

Mortgage bond prices finished the week higher, which pushed rates lower. Rates were positive the first portion of the week as the dollar remained strong. There was some weakness Tuesday morning in response to stronger stocks. The weaker than expected retail sales report Wednesday morning helped rates improve. Retail sales fell 0.9% versus the expected 0.1% increase. Mixed data Thursday morning resulted in some choppy trading. An increase in core producer prices caught everyone by surprise. The core rose 0.3% versus the expected 0.1% increase. This was countered by higher than expected weekly jobless claims and a weaker than expected Philadelphia Fed business conditions index. Mortgage interest rates finished the week better by approximately 3/8’s of a discount point.

LOOKING AHEAD

Economic
Indicator		 Release
Date & Time		 Consensus
Estimate
Analysis
NAHB Housing Index Tuesday, Jan. 20,
10:00 am, et		 58 Moderately Important. A measure of single-family housing. Weakness may lead to lower mortgage rates.
Housing Starts Wednesday, Jan. 21,
8:30 am, et		 1032k Important. A measure of housing sector strength. Weakness may lead to lower rates.
Weekly Jobless Claims Thursday, Jan. 22,
8:30 am, et		 302k Important. An indication of employment. Higher claims may result in lower rates.
FHFA House Price Index Thursday, Jan. 22,
9:00 am, et		 Up 0.7% Moderately Important. A measure of single-family house prices. Weakness may lead to lower rates.
10-year Treasury TIPS Auction Thursday, Jan. 22,
1:15 pm, et		 None Important. TIPS will be auctioned. Strong demand may lead to lower mortgage rates.
Leading Economic Indicators Friday, Jan 23,
10:00 am, et		 Up 0.6% Important. An indication of future economic activity. Weakness may lead to lower rates.

LEI

The index of leading economic indicators (LEI) is a weighted average of eleven economic variables that “lead” the business cycle. It is constructed for forecasting future aggregate economic activity. The eleven variables that make up the LEI measure workers’ hours, initial unemployment claims, new factory orders, vendor performance, contracts and orders for plant and equipment, new housing permits, changes in unfilled orders, prices of raw materials, stock prices, money supply and consumer expectations.

Each of the variables that comprise the index has a tendency to predict (or lead) economic activity. For example, new orders for manufactured goods, new orders for plant and equipment, and new building permits are all direct measures of the amount of future production being planned for the economy.

Analysts monitor the LEI in an effort to predict future economic growth. When the LEI report is up, mortgage market participants expect credit demand to increase and inflationary pressures to build. Thus, when the LEI report is rising, interest rates tend to rise as well. The LEI report is a valuable forecasting device that often correctly predicts economic turning points. The percentage change in the LEI is reported monthly and is an indication of the activity that will occur within the next three to six months. The LEI tends to turn down before peaks in the business cycle. Continuous declines are generally accepted as evidence that a recession continues.

Nine of the eleven components that make up this index are known before the release of the report, so the index is easier for economists to predict than other data releases. Thus, although this is important predictive data for market participants, major surprises are not common with the release of this data.

 

Copyright 2015. All Rights Reserved. Mortgage Market Information Services, Inc. www.ratelink.com The information contained herein is believed to be accurate, however no representation or warranties are written or implied.