Received on 10/15/07:
Market Comment
Mortgage bond prices fell last week pushing rates higher. The Fed minutes from the last meeting showed concerns of downside economic risk coupled with continued housing market weakness. However, the Fed indicated the recent easing seemed unlikely to fan inflation, which generally bodes well for bonds. Weaker than expected trade data helped the dollar improve slightly making dollar-denominated securities such as mortgage bonds more attractive to investors. For the week, interest rates on government and conventional loans rose by about 1/8 of a discount point.
The consumer price index data Wednesday will be the most important event this week. Industrial production, capacity use, housing starts, Fed "beige book", and leading economic indicators data will also be important.
LOOKING AHEAD
Economic | Release | Consensus |
|
Industrial Production | Tuesday, Oct. 16, | Up 0.1% | Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
Capacity Utilization | Tuesday, Oct. 16, | 82.2% | Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates. |
Consumer Price Index | Wednesday, Oct. 17, | Up 0.2%, | Important. A measure of inflation at the consumer level. Lower than expected increases may lead to lower rates. |
Housing Starts | Wednesday, Oct. 17, | Down 3.5% | Important. A measure of housing sector strength. Larger than expected decreases may lead to lower rates. |
Fed "Beige Book" | Wednesday, Oct. 17, | None | Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates. |
Leading Economic Indicators | Thursday, Oct 18, | Up 0.4% | Important. An indication of future economic activity. A smaller increase may lead to lower rates. |
Philadelphia Fed Survey | Thursday, Oct 18, | None | Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. |
Inflation Data
The mortgage bond market received mixed inflation data last week. The producer price index, a major gauge of inflation at the producer level, rose a surprising 1.1% in September. This was significantly higher than the expected 0.4% increase. However, the core rate, which excludes volatile food and energy, rose 0.1%. This figure was weaker than the expected 0.2% increase. Mixed inflation signs do not generally bode well for mortgage bonds. The lower than expected core producer price figure helps reinforce the belief that the Fed easing did little to fan inflation. However, the higher than expected producer price figure supports the opposite conclusion. With the mixed data and the recent Fed minutes showing inflation remains contained, this week's consumer price index may carry some additional weight.
If future data echoes that of the core producer price data, then it is very likely mortgage interest rates will remain the same or could even push lower. However, if the consumer price index echoes the producer price index increase the fear of inflation may increase pushing rates higher. Be aware that floating into the consumer price release this week is risky. The good news is that mortgage interest rates currently are historically favorable. It is a great time to take advantage of rates at the current levels.
Courtesy of:
Karen McNeil - Mortgage Consultant
Adobe Mortgage
785 Alamo Dr. # 140
Vacaville, CA 95688
Phone: (707) 469-1234
Fax: (707) 453-1037
Cell Phone: (707)301-0209
E-Mail: kmcneil@lendscape.com
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