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Mortgage Market in Review – July 10, 2017

 

Market Comment

Mortgage bond prices finished the week lower which put upward pressure on rates. Solid data and news out of the Eurozone set the negative tone for the week. The ISM index was 57.8 versus the expected 55 reading. The European Central Bank said the “economic upturn had gathered some further momentum.” This reversed some of the flight to safety buying of U.S. debt instruments such as mortgage-backed securities. Weekly jobless claims were 248K. Analysts looked for a reading of 244K. Unemployment came in 4.4%. Analysts expected a reading of 4.3%. Non-farm payrolls rose 222K versus the expected 173K. Average hourly earnings rose 0.2% versus the expected 0.3% increase. We ended the week worse by approximately 3/8 to 1/2 of a discount point.


LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
Fed “Beige Book” Wednesday, July 12,
2:00 pm, et
None Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
Producer Price Index Thursday, July 13,
8:30 am, et
Unchanged,
Core up 0.2%
Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates.
Weekly Jobless Claims Thursday, July 13,
8:30 am, et
238K Important. An indication of employment. Higher claims may result in lower rates.
Retail Sales Friday, July 14,
8:30 am, et
Up 1.4% Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
Consumer Price Index Friday, July 14,
8:30 am, et
Down 0.1%,
Core up 0.1%
Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates.
Industrial Production Friday, July 14,
9:15 am, et
Up 0.1% Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
Capacity Utilization Friday, July 14,
9:15 am, et
76.7% Important. A figure above 85% is viewed as inflationary. Weaker figure may lead to lower rates.
U of Michigan Consumer Sentiment Friday, July 14,
10:00 am, et
95.4 Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

China

China is an important driver in the global recovery following the financial crisis that started in 2008. Their economy continues to expand while other countries falter. China is a major purchaser of commodities, especially copper and iron ore that are used in industrial production. That buying helps many developing countries weather the financial crisis. In addition to commodities, China buys US Treasury debt and currently holds in excess of $1.09T.

China’s GDP growth in 2010 was 10.4%. That number fell in 2011 to 9.3%. Growth rates in 2012 and 2013 were 7.7%. The rate in 2014 was 7.4% and 6.9% in 2015. The rate bottomed in 2016 to 6.7%. The first portion of 2017 showed a rebound of 6.9%. There are always lingering questions regarding the accuracy of the economic figures. Some analysts have suspicions that the data could be influenced by the government rather than accurately reflecting current conditions. The Chinese economic growth rate is still sharply higher than most other large economies.


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