Mortgage bond prices rose slightly last week pushing mortgage interest rates lower. Most of the data showed signs the economy continued to struggle. Unfortunately the Fed minutes showed increased inflation concerns, which tempered any major improvements in mortgage interest rates. Stocks bounced up and down, which resulted in continued whipsaw trading in mortgage bonds.
For the week, interest rates on government and conventional loans fell by about 1/8 to 1/4 of a discount point.
The consumer price index data Wednesday will be the most important event this week. The potential for market volatility is high surrounding the other releases as the economy continues to struggle.
Economic Indicator Release Date Time Consensus Estimate Analysis
Retail Sales Monday, April 14, 2008 Up 0.1% Important. A measure of consumer demand. Weakness may lead to lower mortgage rates.
Producer Price Index Tuesday, April 15, 2008 Up 0.4%, Core up 0.2% Important. A measure of inflation at the producer level. Lower than expected increases may lead to lower rates.
Consumer Price Index Wednesday, April 16, 2008 Up 0.3%, Core up 0.2% Important. A measure of inflation at the consumer level. Lower than expected increases may lead to lower rates.
Housing Starts Wednesday, April 16, 2008 Down 3.8% Important. A measure of housing sector strength. Larger than expected decrease may lead to lower rates.
Industrial Production Wednesday, April 16, 2008 Down 0.1% Important. A measure of manufacturing sector strength. A larger than expected decrease may lead to lower rates.
Capacity Utilization Wednesday, April 16, 2008 80.4% Important. A figure above 85% is viewed as inflationary. A decrease may lead to lower rates.
Fed "Beige Book" Wednesday, April 16, 2008 None Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
Leading Economic Indicators Thursday, April 17, 2008 Up 0.1% Important. An indication of future economic activity. Weakness may lead to lower rates.
Producer Price Index
The producer price index is a measure of prices at the producer level and is important because it is the first inflation report to be released each month. Investors are typically able to gain an initial indication of inflationary pressures from the release. If producer prices are increasing, there is a tendency for producers to pass the increases on to consumers in the form of higher priced goods. It is important to note that the PPI is only a measure of goods, while the consumer price index is a measure of goods and services. It is possible for the price of goods to remain stable, while the price of services increases. In this scenario PPI would do little to warn of a change in inflationary pressures, while the CPI report would provide an indication of the inflationary effects of the service component. This distinction between the two reports shows why most analysts view the CPI as a more accurate indicator of inflation. Nevertheless, market participants still gain valuable insight into potential volatility in the financial markets from the PPI.
*Information courtesy Tonya Esquibel, WR Starkey Mortgage, Franklin TN*
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