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Market
Comment
Mortgage bond prices finished the week slightly lower which put a little upward pressure on rates. Trading was back and forth within a narrow range throughout most of the week. Some weakness emerged around several of the economic releases, but the data was mixed. Weekly ADP employment rose 10.5K vs 7.5K. NAHB housing was 36 vs 38. Durable goods orders fell 1.4% vs the expected 2% decline. Housing starts were 1.404M vs 1.33M. Industrial production rose 0.7% vs 0.4%. Capacity use was 76.2% vs 76.5%. The trade deficit was $70.3B vs $55.5B. Weekly jobless claims were 206K vs 225K. Income was up 0.3% as expected and spending rose 0.4% as expected. Growth figures disappointed as GDP rose 1.4% vs 3% in Q4. Mortgage interest rates finished the week worse by approximately 1/8 of a discount point.
LOOKING
AHEAD
|
Economic
Indicator |
Release
Date &
Time |
Consensus
Estimate |
Analysis
|
| Factory Orders |
Monday, Feb. 23,
10:00 am, et
|
Up 1.1%
|
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
|
| ADP Weekly |
Tuesday, Feb. 24,
8:30 am, et
|
10K
|
Important. An indication of employment. Weakness may bring lower rates.
|
| Consumer Confidence |
Tuesday, Feb. 24,
10:00 am, et
|
86
|
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
|
| Treasury Auctions Begin |
Tuesday, Feb. 24,
1:15 pm, et
|
None
|
Important. 2Y Notes on Tuesday, 5Y Notes on Wednesday, and 7Y Notes on Thursday.
|
| Weekly Jobless Claims |
Thursday, Feb. 26,
8:30 am, et
|
211K
|
Important. An indication of employment. Higher claims may result in lower rates.
|
| Producer Price Index |
Friday, Feb. 27,
8:30 am, et
|
Up 0.3%,
Core up 0.3%
|
Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates.
|
| Construction Spending |
Friday, Feb. 27,
10:00 am, et
|
Up 0.3%
|
Low importance. An indication of economic strength. Significant weakness may lead to lower rates.
|
Inflation Uptick
The Bureau of Labor Statistics (BLS) released inflation data last Friday which caused some concern. Core PCE inflation, the Fed’s preferred inflation gauge, rose 0.4% versus the expected 0.3% increase. Inflation, real or perceived, erodes the value of fixed income investments such as mortgage-backed securities. Rising inflation causes MBS prices to fall and rates to rise.
The Fed is divided on their dual mandate of full employment and stable prices. The Fed minutes last week showed a divided board. Several participants indicated further downward adjustments would likely be appropriate if inflation declined in line with expectations. Some participants favored holding rates steady for some time to assess incoming data on inflation. A number of participants saw no need for additional cuts unless inflation fell firmly toward the 2% target. Several participants supported language open to upward adjustments if inflation remained persistently above 2%.
The current trend is neutral with rates remaining relatively steady. Future data will be very important. A cautious approach to float/lock decisions is wise as short-term volatility is unpredictable.
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