Market Comment
Mortgage bond prices rose last week applying downward pressure on mortgage interest rates. The week started on negative footing when the European Union poured a trillion dollars into efforts to stabilize Greece. Stocks across the globe rallied at the expense of bonds. Fortunately that was short-lived, as traders remain concerned the efforts will not stop future economic turmoil in Europe.
Rates fell by about 1/4 of a discount point for the week.
The consumer price index Wednesday will be the most important event this week. The housing data, producer price index, and leading economic indicators data may also move the market.
LOOKING AHEAD
|
Economic
Indicator
|
Release
Date & Time
|
Consensus
Estimate
|
Analysis
|
| Producer Price Index |
Tuesday, May 18,
8:30 am, et
|
Up 0.2%,
Core up 0.1%
|
Important. A measure of inflation at the producer level. Lower figures may lead to lower rates. |
| Housing Starts |
Tuesday, May 18,
8:30 am, et
|
420k
|
Important. A measure of housing sector strength. Larger than expected decreases may lead to lower rates. |
| Consumer Price Index |
Wednesday, May 19,
8:30 am, et
|
Up 0.2%,
Core up 0.1%
|
Important. An indication of inflationary pressures at the consumer level. Decreases may lead to lower rates. |
| Weekly Jobless Claims |
Thursday, May 20,
8:30 am, et
|
410k |
Moderately important. An increase in claims may bring lower rates. |
| Leading Economic Indicators |
Thursday, May 20,
10:00 am, et
|
Up 1.2% |
Important. An indication of future economic activity. A smaller increase may lead to lower rates. |
| Philadelphia Fed Survey |
Thursday, May 20,
10:00 am, et
|
21.5 |
Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. |
Consumer Price Index
The Consumer Price Index is widely accepted as the most important measure of inflation. The CPI is a measure of prices at the consumer level for a fixed basket of goods and services. The National Statistics Office and the Bureau of Agricultural Statistics of the Department of Agriculture collect price data for the computation of the CPI. Since it is an index number, it compares the level of prices to a base period. By comparing the level of the index at two different points in time, analysts can determine how much prices have risen in that period. Unlike other measures of inflation, which only factor domestically produced goods; the CPI takes into account imported goods as well. This is important due to the ever-increasing reliance of the US economy upon imported goods. Analysts primarily focus on the core rate of the CPI which factors out the more volatile food and energy prices.
Record debt levels continue to weigh heavily upon the financial markets. The health of the economy remains uncertain. The Fed has itself in a precarious position of wanting to stoke the economy amid the real possibility of increased inflation and increased debt loads.
Market participants expect the consumer price relatively tame this week. Inflation friendly data may lead to improvements in mortgage interest rates. However, unexpected consumer price spikes may push interest rates higher in the short-term. A cautious approach to float/lock decisions is prudent.
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