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Mortgage Market in Review – October 13, 2014

Market Comment

Mortgage bond prices finished the week higher, which pushed rates lower. Flight to quality buying of U.S. debt resulted in the improvements. News out of China and Europe signaled economic challenges remain. The minutes from the last Fed meeting published Wednesday afternoon had a strong influence on global financial markets, which caused volatility in mortgage rates. The debate over the Fed’s next move intensified because Fed officials were more “dovish” (more inclined to keep rates lower longer) than expected. MBS prices quickly reversed a negative position with a positive move of almost 1/2 of a discount point. Some of the gains from earlier in the week were erased Thursday afternoon and Friday morning. Mortgage interest rates still finished the week better by approximately 7/8 of a discount point despite the volatility.

LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
Producer Price Index Wednesday, Oct. 15,
8:30 am, et
Unchanged,
Core up 0.1%
Important.  An indication of inflationary pressures at the producer level.  Weaker figures may lead to lower rates.
Retail Sales Wednesday, Oct. 15,
8:30 am, et
Up 0.6% Important.  A measure of consumer demand.  A smaller than expected increase may lead to lower mortgage rates.
Fed “Beige Book” Wednesday, Oct. 15,
2:00 pm, et
None Important.  This Fed report details current economic conditions across the US.  Signs of weakness may lead to lower rates.
Weekly Jobless Claims Thursday, Oct. 16,
8:30 am, et
283k Important.  An indication of employment.   Higher claims may result in lower rates.
Industrial Production Thursday, Oct. 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 Thursday, Oct. 16,
9:15 am, et
78.7% Important.  A figure above 85% is viewed as inflationary.  Weaker figure may lead to lower rates.
Philadelphia Fed Survey Thursday, Oct. 16,
10:00 am, et
9.8 Moderately important.  A survey of business conditions in the Northeast.  Weakness may lead to lower rates.
Housing Starts Friday, Oct. 17,
8:30 am, et
975k Important.  A measure of housing sector strength.  Weakness may lead to lower rates.
U of Michigan Consumer Sentiment Friday, Oct. 17,
10:00 am, et
84.3 Important.  An indication of consumers’ willingness to spend.  Weakness may lead to lower mortgage rates.

Industrial Production

The Federal Reserve releases the Industrial Production report each month. It is a real measure of output from manufacturing, mining, electric, and gas utilities. The data is significant in that it provides an indicator of the state of the economy. Analysts use the data to attempt to determine market direction. The Fed uses the data to help set the course for monetary policy. Generally the Fed likes to see steady growth in the economy with little price pressures.

Mortgage interest rates generally react favorably to weaker than expected industrial production data. In times of economic weakness investors often move out of stocks and into mortgage bonds. When things look good investors often move out of bonds and back into stocks. We have seen these patterns frequently in recent months. Floating into significant economic data always has some risk involved. Now is a great time to take advantage of mortgage interest rates at these historically favorable levels.

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