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Mortgage Market in Review – June 16 2014

Market Comment

Mortgage bond prices finished the week negative which put upward pressure on rates. We started the week on a bad note and never could recover. There was no data early but the first two Treasury auctions showed weaker than normal foreign demand. That trend reversed with the solid 30Y auction Thursday afternoon but it wasn’t enough. Weekly jobless claims were 317k compared to estimates of 315k. This figure was near expectations and did not move the MBS market. Retail sales rose 0.3% versus the expected 0.6% increase which was rate friendly. The producer price index fell 0.2% versus the expected 0.2% increase. The core fell 0.1% versus the expected 0.1% increase. Unfortunately, the rate friendly PPI data was countered by escalating geopolitical concerns with unrest in Iraq. Mortgage interest rates rose by about 3/8 to 1/2 of a discount point for the trading week.

LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
Industrial Production Monday, June 16,
9:15 am, et
Up 0.2% Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates.
Capacity Utilization Monday, June 16,
9:15 am, et
78.7% Important. A figure above 85% is viewed as inflationary. Weaker figure may lead to lower rates.
Housing Starts Tuesday, June 17,
8:30 am, et
998k Important. A measure of housing sector strength. Weakness may lead to lower rates.
Consumer Price Index Tuesday, June 17,
8:30 am, et
Up 0.2%,
Core up 0.1%
Important. A measure of inflation at the consumer level. Lower than expected increases may lead to lower rates.
Fed Meeting Adjourns Wednesday, June 18,
2:15 pm, et
No rate changes Important. Few expect the Fed to change rates, but some volatility may surround the adjournment of this meeting.
Weekly Jobless Claims Thursday, June 19,
8:30 am, et
304k Important. An indication of employment. Higher claims may result in lower rates.
Philadelphia Fed Survey Thursday, June 19,
10:00 am, et
6.8 Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.
Leading Economic Indicators Thursday, June 19,
10:00 am, et
Up 0.2% Important. An indication of future economic activity. A smaller increase may lead to lower rates.
10-year Treasury TIPS Auction Thursday, June 19,
1:15 pm, et
None Important. TIPS will be auctioned. Strong demand may lead to lower mortgage rates.

Fed Focus

The United States central bank, the Federal Reserve, coordinates the borrowing and lending activities of federally chartered banks. The principal reason the Federal Reserve was created was to reduce severe financial crises. One way of accomplishing this goal is to control the amount of money that flows through the economy. By manipulating the US money supply, the Fed influences inflation, unemployment, and the level of US economic activity. The Fed has a variety of tools that it uses to control the money supply, but its chief policy tool is the manipulation of short-term interest rates.

No rate changes are expected at the Wednesday meeting but there is concern about the future. The Fed has announced MBS purchase reductions at recent meetings but also indicated they would be ready to make changes to that as warranted. Their post meeting remarks will be carefully analyzed.

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