Market Comment Mortgage bond prices finished the week higher, which pushed rates lower. The situation in Ukraine and concern over the health of the Chinese economy continued to support bond prices as global investors shed stocks in search of safety. The US economy imported more goods than it exported resulting in a trade deficit of $40.4B. Fed Head Yellen cited geopolitical risks and soft housing as areas of concern in her testimony to the House and Senate. Weekly jobless claims printed at 319k versus the expected 325k. This was not rate friendly. Mortgage interest rates fell by about 1/4 a discount point for the trading week despite the continued volatility. LOOKING AHEAD
Producer Price Index The producer price index is a measure of prices at the producer level and is important because it is the first inflation report to be released each month. Investors are typically able to gain an initial indication of inflationary pressures from the release. If producer prices are increasing, there is a tendency for producers to pass the increases on to consumers in the form of higher priced goods. It is important to note that PPI is only a measure of goods, while the consumer price index is a measure of goods and services. It is possible for the price of goods to remain stable, while the price of services increases. In this scenario PPI would do little to warn of a change in inflationary pressures, while the CPI report would provide an indication of the inflationary effects of the service component. This distinction between the two reports shows why most analysts view the CPI as a more accurate indicator of inflation. Nevertheless, market participants still gain valuable insight into potential volatility in the financial markets from the PPI release. Be cautious heading into the inflation data this week. |
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