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Market Comment
Mortgage bond prices finished the weak sharply lower pushing mortgage interest rates higher.Rates were positive the beginning of the week following reports that China’s growth remained a concern.The positive movements were quickly erased Tuesday following better than expected data and strong stocks in which the DOW surged 218 points higher that day.The Fed meeting added fuel to the selling pressure of mortgage bonds in which they indicated economic conditions were improving.Tuesday’s stress test results of US banks showed strength, which also resulted in a sell-off of bonds and buying of stocks.All the weakness resulted in mortgage interest rates rising by over a full discount point for the week.
LOOKING AHEAD
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Economic
Indicator
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Release
Date & Time
|
Consensus
Estimate
|
Analysis
|
| Housing Starts |
Tuesday, March 20,
8:30 am, et
|
705k |
Important.A measure of housing sector strength.Weakness may lead to lower rates. |
| Existing Home Sales |
Wednesday, March 21,
10:00 am, et
|
3.8m |
Low importance.An indication of mortgage credit demand.Significant weakness may lead to lower rates. |
| Weekly Jobless Claims |
Thursday, March 22,
8:30 am, et
|
353k |
Important.An indication of employment.Higher claims may result in lower rates. |
| Leading Economic Indicators |
Thursday, March 22,
10:00 am, et
|
Up 0.2% |
Important.An indication of future economic activity.Weakness may lead to lower rates. |
| 10-year TIPS Auction |
Thursday, March 22,
1:15 pm, et
|
None |
Important.Notes will be auctioned.Strong demand may lead to lower mortgage rates. |
| New Home Sales |
Friday, March 23,
10:00 am, et |
325k |
Important.An indication of economic strength and credit demand.Weakness may lead to lower rates. |
LEI
The index of leading economic indicators (LEI) is a weighted average of eleven economic variables that “lead” the business cycle.It is constructed for forecasting future aggregate economic activity.The eleven variables that make up the LEI measure workers’ hours, initial unemployment claims, new factory orders, vendor performance, contracts and orders for plant and equipment, new housing permits, changes in unfilled orders, prices of raw materials, stock prices, money supply and consumer expectations.
Each of the variables that comprise the index has a tendency to predict (or lead) economic activity.For example, new orders for manufactured goods, new orders for plant and equipment, and new building permits are all direct measures of the amount of future production being planned for the economy.
Analysts monitor the LEI in an effort to predict future economic growth.When the LEI report is up, mortgage market participants expect credit demand to increase and inflationary pressures to build.Thus, when the LEI report is rising, interest rates tend to rise as well.
The LEI report is a valuable forecasting device that correctly predicts most economic turning points.The percentage change in the LEI is reported monthly and is an indication of the activity that will occur within the next three to six months.The LEI tends to turn down before peaks in the business cycle.Continuous declines are generally accepted as evidence that a recession continues.
Nine of the eleven components that make up this index are known before the release of the report, so the index is easy for economists to predict.Thus, although this is important predictive data for market participants, surprises are not common with the release of this data.
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