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Mortgage Market in Review – June 9, 2014

Market Comment

Mortgage bond prices finished the week positive, which helped rates improve. We started the week on a positive note with a 1/4 point improvement Monday in response to the weaker data. The Institute for Supply Management (ISM), a report on manufacturing, printed at 53.2, lower than the expected 55.6. Unfortunately those gains and more were erased Tuesday in response to stronger than expected data. Factory orders rose 0.7%, better than the expected 0.5% increase traders were expecting. Productivity in the first quarter fell 3.2% and labor costs rose 5.7%. That data was mixed. Market participants expected a 2.5% decline in productivity and a 4.8% increase in labor costs. The jobs report Friday was as expected. Mortgage interest rates fell by about 1/4 a discount point for the trading week despite the continued volatility.

LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
3-year Treasury Note Auction Tuesday, June 10,
1:15 pm, et
None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
10-year Treasury Note Auction Wednesday, June 11,
1:15 pm, et
None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Weekly Jobless Claims Thursday, June 12,
8:30 am, et
305k Important. An indication of employment. Higher claims may result in lower rates.
Retail Sales Thursday, June 12,
8:30 am, et
Up 0.1% Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
30-year Treasury Bond Auction Thursday, June 12,
1:15 pm, et
None Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates.
Producer Price Index Friday, June 13,
8:30 am, et
Unchanged,
Core up 0.1%
Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates.
U of Michigan Consumer Sentiment Friday, June 13,
10:00 am, et
80.9 Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

Retail Sales

Retail sales data is the first indication of weakness or strength in consumer spending released each month. The Bureau of the Census of the US Department of Commerce provides information on how much the consumer spends on the purchase of goods. This data provides the consumption part of the gross domestic product. Retail sales data represents merchandise sold for cash or credit by retailers. Durable goods, such as autos, make up 35% of the figure. The balance consists of non-durables such as gasoline, restaurants, and general merchandise.

There are several drawbacks to the report. The data covers purchases of goods only, not services. It is also not adjusted for inflation and is extremely volatile. This means a miss to either side of expectations is not uncommon which can result in mortgage interest rate swings.

Economists are concerned that the current economic uncertainty will continue to curtail consumer-spending habits. Consumers have generally been given credit for sustaining the economy even amid the economic turmoil.


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