Mortgage Market in Review

Interest rate hedgeMarket Comment – Afternoon of December 11, 2014

Mortgage bond prices finished the week slightly higher which pushed rates a bit lower. Trading started on a positive note early in the week amid weak stocks. There was no data until the end of the week but we had several Treasury auctions that were near average. Weekly jobless claims were 282K. Analysts expected claims at 270K. The initial reaction was muted as traders already priced in the fact that the Fed is poised to raise rates. Retail sales rose 0.2% versus the expected 0.3%. However, the ex-autos figure rose 0.4% versus the expected 0.3% increase. The producer price index showed some signs of inflation. PPI rose 0.3% versus the expected unchanged reading. The core, which excludes volatile food and energy, rose 0.3% versus the expected 0.1% increase. Mortgage interest rates finished the week better by approximately 1/4 to 3/8 of a discount point.

LOOKING AHEAD

Economic Indicator Release Date & Time Consensus Estimate Analysis
Consumer Price Index Tuesday, Dec. 15, 8:30 am, et Up 0.2%, Core up 0.1% Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates.
Housing Starts Wednesday, Dec. 16, 8:30 am, et 1070K Important. A measure of housing sector strength. Weakness may lead to lower rates.
Industrial Production Wednesday, Dec. 16, 9:15 am, et Up 0.2% Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates.
Capacity Utilization Wednesday, Dec. 16, 9:15 am, et 77.2% Important. A figure above 85% is viewed as inflationary. Weaker figure may lead to lower rates.
Fed Meeting Adjourns Wednesday, Dec. 16, 2:15 pm, et 25 basis point increase Very Important. Most expect the Fed to raise rates. Volatility is likely following the adjournment of this meeting.
Weekly Jobless Claims Thursday, Dec. 17, 8:30 am, et 278K Important. An indication of employment. Higher claims may result in lower rates.
Philadelphia Fed Survey Thursday, Dec. 17, 10:00 am, et 4.8 Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.
Leading Economic Indicators Thursday, Dec. 17, 10:00 am, et Up 0.4% Important. An indication of future economic activity. A smaller increase may lead to lower rates.

Philadelphia Fed

Federal Reserve Banks were created to control the central banking system of the United States. The banks are divided into 12 districts and facilitate the monetary system by moving currency in and out of circulation in accordance with the policies set by the Federal Open Market Committee. The Reserve Banks handle check processing, hold cash reserves and make loans to depository institutions. Each Reserve Bank regulates commercial banks in their district. The twelve districts include Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.
The Philadelphia Fed report is a survey of manufacturing businesses in the Northeast region. The report is valuable due to the timing. It is released before the month is over and is the second regional report released. While there are many other regional reports throughout the month the Philadelphia Fed report is considered to be one of the most valuable. It has historically shown strong correlation with purchasing managers index data and therefore analysts give it considerable attention.

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