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Mortgage Market in Review – March 17, 2014

Market Comment

Mortgage bond prices finished the week higher which pushed rates sharply lower.  Prices were flat the first of the week in response to stock weakness amid no data.  Prices were pressured a bit Thursday morning following better than expected jobless claims and retail sales data.  Weekly jobless claims came in at 315k versus the expected 329k.  Retail sales rose 0.3% while analysts expected a 0.2% increase.  A sharp decrease in producer prices helped MBS prices rally Friday.  PPI fell 0.1% and the core fell 0.2%.  Prices were expected to rise 0.2% and 0.1% respectively.  Mortgage interest rates finished the week better by approximately 1/2 to 3/4 of a discount point.

LOOKING AHEAD

Economic
Indicator

Release
Date & Time

Consensus
Estimate


Analysis

Industrial Production

Monday, March 17,
9:15 am, et

Up 0.2%

Important.  A measure of manufacturing sector strength.  Weakness may lead to lower rates.

Capacity Utilization

Monday, March 17,
9:15 am, et

78.1%

Important.  A figure above 85% is viewed as inflationary.  Weakness may lead to lower rates.

Housing Starts

Tuesday, March 18,
8:30 am, et

865k

Important.  A measure of housing sector strength.  Weakness may lead to lower rates.

Consumer Price Index

Tuesday, March 18,
8:30 am, et

Up 0.2%,
Core up 0.2%

Important.  A measure of inflation at the consumer level.  Lower than expected increases may lead to lower rates.

Fed Meeting Adjourns

Wednesday, March 19,
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, March 20,
8:30 am, et

305k

Important.  An indication of employment.   Higher claims may result in lower rates.

Philadelphia Fed Survey

Thursday, March 20,
10:00 am, et

Up 2.0

Moderately important.  A survey of business conditions in the Northeast.  Weakness may lead to lower rates.

Leading Economic Indicators

Thursday, March 20,
10:00 am, et

Up 0.2%

Important.  An indication of future economic activity.  A smaller increase may lead to lower rates.

China

China has been 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 helped many developing countries weather the financial crisis.  In addition to commodities, China buys US Treasury debt and currently holds in excess of $1T.

China’s economy weakened sharply in the first two months of 2014 causing concern that the weakness may continue.  The slowdown is broad-based including manufacturing, housing and investment.  China’s Premier Li Keqiang recently warned lenders to expect high levels of defaults from loans made to factories and to expect “serious challenges” in the years ahead.

The Chinese economy grew 7.7% last year, sharply higher than any other large economy.  However, the fear that growth will slow causing the government to act is growing.  China’s concern is employment.  A dramatic increase in unemployment could cause civil unrest, something no government wants to face.

 China is a major trading partner with many economies.  A dramatic slowdown in growth, or worse, a housing or credit bust would be felt around the world.

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