Market Update

Watch out for Mortgage Rates this week!

At Legacy Mortgage we are constantly seeking ways to enhance our dedication to our clients and real estate partners. Our position as an innovator in the field of real estate finance allows us to help you make informed decisions regarding your customers mortgage financing. We have scoured through the financial reports for the week and we wanted to share the information with you. Please let us know if we can be of further assistance to you and your valued clients.

This week brings us the release of six important economic reports for the bond market to digest. Several of these reports are considered to be of high importance, meaning we will likely see volatility in the financial markets and mortgage pricing over the next several days. There are also plenty of corporate earnings releases scheduled for the stock markets this week along with the minutes from the last FOMC meeting. Throw in a couple of days of Fed testimony and we have the makings for a very interesting week.

The first piece of data comes Tuesday morning with the release of June's Producer Price Index (PPI). The PPI is very important because it measures inflationary pressures at the producer level of the economy. It is expected to show a 1.3% increase in the overall reading and a 0.3% rise in the core data reading. The bond market should react quite favorably to weaker than expected readings, but a bigger than expected jump in the core reading could send mortgage rates higher Tuesday.

June's Retail Sales report will also be posted Tuesday. The Commerce Department is expected to say that sales at retail establishments rose 0.3% last month. This data is considered to be of high importance because it measures consumer spending. Consumer spending makes up two-thirds of the U.S. economy, so any related data is watched closely. A smaller than expected increase in sales could help fuel a bond rally and lead to lower mortgage rates, depending on the results of the PPI report.

Next on tap is Wednesday's release of June's Consumer Price Index (CPI). It is a mirror of Tuesday's PPI with the exception that the CPI measures inflation at the more important consumer level of the economy. Analysts have forecasted a 0.7% increase in the overall index and a 0.2% rise in the core data. The core data is considered to be the k ey reading of both the PPI and CPI because they exclude more volatile food and energy prices, giving us a more stable measure of inflation. Higher than expected readings could raise inflation fears and push mortgage rates higher both days.

June's Industrial Production data will also be posted Wednesday morning. This data measures output and U.S. factories, mines and utilities, giving us an indication of manufacturing sector strength. It is expected to show a 0.2% rise in production, indicating that the manufacturing sector showed moderate growth during the month. A smaller than expected increase would be good news and could help push mortgage rates slightly lower Wednesday.

Also worth noting about Wednesday is the release of the minutes from the last FOMC meeting. There is a possibility of the markets reacting to them following their 2:00 PM ET release, especially if they show some divisiveness by its members during discussion and voting at the last meeting.

Fed Chairman Bernanke will speak before the Senate Banking Committee Tuesday morning and the House Financial Services Committee Wednesday morning at 10:00am ET. His testimony will be broadcasted and will be watched very closely. Analysts and traders will be looking for the status of the economy and his expectations of future growth, particularly inflation concerns. This should create a great deal of volatility in the markets during the testimony and the question and answer session that follows. If he indicates that inflation is still a point of concern, we will likely see the bond market tank and mortgage rates rise.

Thursday's only relevant data is June's Housing Starts report. This data gives us an indication of housing sector strength, but is not considered to be of high importance. Analysts are currently expecting to see a small decline in new starts of housing projects. However, we don't see this data having a much of an impact on mortgage rates Thursday unless it va ries greatly from forecasts.

Overall though, we think we will see the most movement in mortgage pricing this week on Tuesday or Wednesday due to the release of the inflation related indexes and Mr. Bernanke's testimony those days. This weekend's news of Fed support of Fannie Mae and Freddie Mac will likely help stocks, but we are not sure of how the bond and mortgage markets will react to that news. We suspect it will be taken as positive news, but it will be interesting to see if it has a significant influence on mortgage pricing. Regardless, even without that turn of events, it will likely be an active week for mortgage rates with a fair amount of volatility.