MARKET COMMENT Mortgage bond prices ended last week near unchanged, which kept mortgage interest rates relatively in check. Trading was choppy with some rate improvements Tuesday, which unfortunately were erased Wednesday and Thursday. Stock strength made it difficult for mortgage bonds to gain any traction. Higher than expected producer price, housing starts, and Philadelphia Fed data also made it difficult for rates to improve.
The employment cost index and PCE core inflation data will be the most important releases this week. The Treasury auctions will be followed closely. If foreign demand falters it could carry over to mortgage backed securities.
• Consumer Confidence; Oct. 25; Consensus Estimate 46; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
• Treasury Auctions; Oct. 25; Important. 2Y Notes on Tuesday, 5Y Notes on Wednesday, and 7Y Notes on Thursday.
• Durable Goods Orders; Oct. 26; Consensus Estimate Down 0.2%; Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates.
• New Home Sales; Oct. 26; Consensus Estimate 287k; Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
• Weekly Jobless Claims; Oct. 27; Consensus Estimate 401k; Important. An indication of employment. Higher claims may result in lower rates.
• Q3 Advance GDP; Oct. 27; Consensus Estimate Up 1.2%; Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
• Personal Income and Outlays; Oct. 28; Consensus Estimate Unchanged, Up 0.1%; Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates.
• PCE Core Inflation; Oct. 28; Consensus Estimate Up 0.1%; Important. A measure of price increases for all domestic personal consumption. Weaker figure may help rates improve.
• Q3 Employment Cost Index; Oct. 28; Consensus Estimate Up 0.4%; Very important. A measure of wage inflation. Weakness may lead to lower rates.
• U of Michigan Consumer Sentiment; Oct. 28; Consensus Estimate 57; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
EMPLOYMENT COST INDEX The employment cost index is a quarterly report issued by the Department of Labor. The report measures the growth of wages, salaries, and benefits costs over a certain period of time. Though ECI figures are usually weeks old, the data remains the best indicator of employment price pressures considering it factors employees’ total compensation.
If wage pressures become evident, higher expectations of inflation also tend to arise. However, increasing compensation does not necessarily lead to increased inflationary pressures. Oftentimes, increased productivity enables employers to increase compensation without increasing the costs of their goods or services. Be cautious heading into this release.
Source: F&M Mortgage, Todd Kabel; MMIS; Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee