Market Comment
Mortgage bond prices finished the week lower, which pushed rates slightly higher. Stocks rallied Tuesday, which pressured mortgage bonds. Retail sales rose 0.1% in January as expected. Industrial production fell 0.1% and capacity utilization printed at 79.1. Expectations were for production to increase 0.2% and utilization to remain unchanged at 78.9. That data was mixed and caused very little market movement. Consumer sentiment printed at 76.3. Traders were expecting consumer sentiment to fall 0.3 to 73.5. That data was stronger than expected. Consumer sentiment is an important gauge of future spending from households. In the US, consumer spending accounts for roughly 2/3’s of GDP. Unfortunately most rates finished the week unchanged to 1/8 of a discount point higher. LOOKING AHEAD | Economic
Indicator | Release
Date & Time | Consensus
Estimate |
Analysis
| | Housing Starts | Wednesday, Feb. 20,
8:30 am, et | 687k | Important. A measure of housing sector strength. Weakness may lead to lower rates. | | Producer Price Index | Wednesday, Feb. 20,
8:30 am, et | Up 0.2%,
Core up 0.1% | Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates. | | Fed Minutes | Wednesday, Feb. 20,
2:00 pm, et | None | Important. Details of the last Fed meeting will be thoroughly analyzed. | | Weekly Jobless Claims | Thursday, Feb. 21,
8:30 am, et | 345k | Important. An indication of employment. Higher claims may result in lower rates. | | Consumer Price Index | Thursday, Feb. 21,
8:30 am, et | 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. | | Existing Home Sales | Thursday, Feb. 21,
10:00 am, et | 4.96m | Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates. | | Philadelphia Fed Survey | Thursday, Feb. 21,
10:00 am, et | -10.4 | Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. | | Leading Economic Indicators | Thursday, Feb. 21,
10:00 am, et | Up 0.3% | Important. An indication of future economic activity. Weakness may lead to lower rates. | | 10-year Treasury TIPS Auction | Thursday, Feb. 21,
1:15 pm, et | None | Important. TIPS will be auctioned. Strong demand may lead to lower mortgage 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 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 release. Be cautious heading into the inflation data this week. |
