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Mortgage Market in Review – June 18, 2018

Market Comment

Mortgage bond prices finished the week higher which put downward pressure on rates.  The first portion of the week started with higher rates followed by small positive movements Tuesday and Wednesday.   Consumer prices rose 0.2% and the core value, which excludes the volatile food and energy components, also rose 0.2%. Traders expected CPI to rise 0.3% and 0.2% respectively.  The Fed raised rates Wednesday as expected.  Producer prices rose 0.5% and the core rose 0.3%. Economists expected PPI to rise 0.3% and the core to rise 0.2%.  Weekly jobless claims were 218K. Analysts looked for a higher reading of 223K.  We ended the week better by 1/8 to 1/4 of a discount point.


LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
NAHB Housing Index Monday, June 18,
10:00 am, et
71 Moderately Important.  A measure of single family housing.  Weakness may lead to lower mortgage rates.
Housing Starts Tuesday, June 19,
8:30 am, et
1295K Important.  A measure of housing sector strength.  Weakness may lead to lower rates.
Existing Home Sales Wednesday, June 20
10:00 am, et
5.47M Low importance.  An indication of mortgage credit demand.  Significant weakness may lead to lower rates.
Weekly Jobless Claims Thursday, June 21,
8:30 am, et
220K Important.  An indication of employment.   Higher claims may result in lower rates.
Philadelphia Fed Survey Thursday, June 21,
10:00 am, et
34.6 Moderately important.  A survey of business conditions in the Northeast.  Weakness may lead to lower rates.
FHFA House Price Index Thursday, June 21,
10:00 am, et
Up 0.4% Moderately Important.  A measure of single family house prices.  Weakness may lead to lower rates.
Leading Economic Indicators Thursday, June 21,
10:00 am, et
Up 0.5% Important.  An indication of future economic activity.  A smaller increase may lead to lower rates.

Fed Changes Outlook

The Fed reported that “Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.”

 

The Fed raised their target federal funds rate to 1.75 to 2 percent.  They guided future policy with the statement that “in determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Analysts now believe there will be two additional rate increases before the end of the year.  The key verbiage was an adjustment from “moderate” growth to “rising at a solid rate” regarding economic activity.


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