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Mortgage Market in Review – October 6, 2014

Market Comment

Mortgage bond prices finished the week higher which pushed rates lower. Tame inflation readings associated with the PCE Core released Monday kept prices positive. Weaker than expected consumer confidence and Chicago PMI data kept things calm. ISM Index was very rate friendly @ 56.6 versus the expected 58.5. Weaker Construction spending added rate support. Spending fell 0.8% versus the expected 0.5% increase. The bad news for rates came Friday with better than expected employment figures. Unemployment came in @ 5.9% versus the expected 6.1%. Non-farm payrolls rose 248k versus the expected 220k increase. Some of the gains from earlier in the week were erased as a result. Fortunately, mortgage interest rates still finished the week better by approximately 1/4 of a discount point despite the volatility.

LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
3-year Treasury Note Auction Tuesday, Oct. 7,
1:15 pm, et
None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Consumer Credit Tuesday, Oct. 7,
3:00 pm, et
$19.56b Low importance. A significantly large increase may lead to lower mortgage interest rates.
10-year Treasury Note Auction Wednesday, Oct. 8,
1:15 pm, et
None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Fed Minutes Wednesday, Oct. 8,
2:00 pm, e
None Important. Details of the last Fed meeting will be thoroughly analyzed.
Weekly Jobless Claims Thursday, Oct. 9,
8:30 am, et
278k Important. An indication of employment. Higher claims may result in lower rates.
30-year Treasury Bond Auction Thursday, Oct. 9,
1:15 pm, et
None Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates.

Oil

U.S. consumers received a nice reprieve from escalating oil and gas prices as of late. Back in the summer of 2008 oil prices hit all-time highs with prices over $140 a barrel. Today U.S. crude, West Texas Intermediate, is priced in the low $90’s per barrel. Some attributed the past highs to “peak oil” levels while others argued they were due to supply and demand. Others called it a “bubble” led by speculation and momentum trading. Whatever the cause, inflation fears tied to energy prices, for now, are nowhere in sight.

Today analysts attribute recent falling oil prices to supply and demand. There is plenty of supply and economies around the globe are still struggling. Most analysts point to China’s reduced demand as a major factor while weakness in the euro zone also plays a part. Increased U.S. production is also noted. The U.S. Energy Information Administration’s (EIA) September’s short-term outlook noted falling retail gasoline prices “driven in large part by falling crude oil prices. Total U.S. crude oil production averaged an estimated 8.6 million barrels per day (bbl/d) in August, the highest monthly production since July 1986. Total crude oil production, which averaged 7.5 million bbl/d in 2013, is expected to average 9.5 million bbl/d in 2015, 0.2 million bbl/d higher than projected in last month’s short-term outlook. If achieved, the 2015 forecast would be the highest annual average crude oil production since 1970. EIA now expects WTI crude oil prices to average $93/bbl in the fourth quarter of 2014, $5/bbl lower than in last month’s STEO, and $95/bbl in 2015.”

“EIA expects U.S. regular gasoline retail prices, which averaged $3.51/gal in 2013, to average $3.46/gal in 2014 and $3.41/gal in 2015, 4 cents lower and 6 cents lower than last month’s (report), respectively.”

The next EIA update is scheduled October 7th. A lower price projection for oil and gas would be more good news for U.S. consumers.

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