MARKET COMMENT Mortgage bond prices fell last week, which pushed mortgage interest rates higher. The roller coaster ride of investor funds entering and exiting the stock and bond markets continues as economic uncertainty dominates trading. The losses continued as foreign demand for US debt instruments waned. Stocks were volatile but generally saw improvements on the week. Retail sales rose a stronger than expected 1.1%.
Mortgage bonds ended the week worse by about 1/4 of a discount point.
The inflation data on the producer and consumer sides will be extremely important this week. There is also a 30Y TIPS auctions Thursday. The recent auctions have shown weak foreign demand, which generally does not bode well for lower rates so caution will be key.
• Industrial Production; Oct. 17; Consensus Estimate Up 0.3%; Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
• Capacity Utilization; Oct. 17; Consensus Estimate 77.2%; Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.
• Producer Price Index; Oct. 18; Consensus Estimate Unchanged, Core up 0.1%; Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates.
• Consumer Price Index; Oct. 19; Consensus Estimate 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; Oct. 19; Consensus Estimate 565k; Important. A measure of housing sector strength. Weakness may lead to lower rates.
• Fed “Beige Book”; Oct. 19; Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
• Weekly Jobless Claims; Oct. 20; Consensus Estimate 400k; Important. An indication of employment. Higher claims may result in lower rates.
• Philadelphia Fed Survey; Oct. 20; Consensus Estimate 10.4; Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.
• Leading Economic Indicators; Oct. 20; Consensus Estimate Up 0.2%; Important. An indication of future economic activity. A smaller increase may lead to lower rates.
SIGNIFICANT DATA Recent economic reports have carried mixed weight in driving the financial markets in light of stock market swings. While stocks have set the tone for trading in mortgage-backed securities recently, an abundance of significant data this week may begin to weigh upon the market as well.
It is possible for mortgage interest rates to trend lower again. However, the potential for increases is also very real, as we have seen the past few weeks. Signs from the data this week that the economy is recovering could lead to stock strength.
Stocks are likely to continue to dictate trade. A weaker stock market may help to maintain current mortgage interest rate levels. However, signs of recovery in the stock market can pressure mortgage bond prices lower and rates higher.
Source: F&M Mortgage, Todd Kabel; Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee