Market Comment - Beware Inflation and if you are thinking of Buying - Don't think Just Do!!!

Market Comment - Week of September 14th, 2009

Mortgage bond prices rose last week pushing mortgage interest rates lower. The US Treasury auctions went well with relatively strong foreign demand for most issues. The gains came as the Fed continued to pour billions into mortgage bonds in an effort to keep rates low to stabilize the housing sector of the economy. The data was mixed as weekly jobless claims came in better than expected and the Fed "Beige Book" indicated inflation remained in check. For the week interest rates fell by about 3/8 of a discount point.

The consumer price index will be the most important data this week. If inflation indications are tame, rates will likely hold steady or improve. However, if inflation increases look for mortgage interest rates to spike higher.

---

Economic Factors
Economic Indicator	Release Date Time	Consensus Estimate	Analysis
Producer Price Index	Tuesday, Sept. 15, 2009	Up 0.8%, Core up 0.1%	Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates.
Retail Sales	Tuesday, Sept. 15, 2009	Up 1.6%	Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
Business Inventories	Tuesday, Sept. 15, 2009	Down 0.8%	Low importance. An indication of stored-up capacity. A significantly large increase may lead to lower rates.
Consumer Price Index	Wednesday, Sept. 16, 2009	Up 0.4%, Core up 0.1%	Important. A measure of inflation at the consumer level. Lower figures may lead to lower rates.
Industrial Production	Wednesday, Sept. 16, 2009	Up 0.7%	Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates.
Capacity Utilization	Wednesday, Sept. 16, 2009	69.1%	Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower interest rates.
Housing Starts	Thursday, Sept. 17, 2009	Up 1.2%	Important. A measure of housing sector strength. Weakness may lead to lower rates.
Philadelphia Fed Survey	Thursday, Sept. 17, 2009	None	Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.

 

Business Inventories

The report on business inventories basically gives a broader look at the durable goods, factory orders, and retail sales reports. Not only is this report an important part of the investment component of the GDP, but it also provides additional evidence about the economy in the upcoming months. Changes in business inventories slow as the economy approaches a peak, and rise as the economy approaches the trough of a recession. Therefore the change in business inventories is a leading indicator of GDP. The data for this report, which are published by the Department of Commerce's Census Bureau, comes from a monthly survey of inventories, orders, and manufacturers' shipments, in addition to the merchant wholesalers and retail trade surveys.

Not a great amount of attention is typically paid to this report due to the fact that much of the data is already available and surprises are rare. The only new information in this report is retail inventories. However, in this environment every piece of data has the potential to cause some volatility.

There still remains some uncertainty about the future of mortgage interest rates. Taking advantage of the recent improvements in rates makes sense.