MARKET COMMENT Mortgage bond prices fell last week pushing mortgage interest rates higher. The Treasury auctions were mixed. The 3YR auction showed weak foreign demand and resulted in a sell off following the results. The 10YR auction was decent and helped keep things in check while the 30YR auction didn’t move the market much. Weekly jobless claims came in at 383k, lower than the expected 410k. That data pressured rates higher. There were some positive movements Friday morning following weaker than expected consumer sentiment data but not enough to recover all the earlier losses. Mortgage rates ended the week higher by a disappointing 3/8 of a discount point.
The Treasury will have a 30Y TIPS auction Thursday afternoon. If demand falters rates could be adversely affected.
- Retail Sales; Feb. 15; Consensus Estimate Up 0.5%; Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
- Housing Starts; Feb. 16; Consensus Estimate 495k; Important. A measure of housing sector strength. Weakness may lead to lower rates.
- Producer Price Index; Feb. 16; Consensus Estimate Up 0.8%, Core up 0.1%; Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates.
- Industrial Production Feb. 16; Consensus Estimate Up 0.7%; Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates.
- Capacity Utilization; Feb. 16; Consensus Estimate 75.5%; Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.
- Consumer Price Index; Feb. 17; Consensus Estimate Up 0.4%, Core up 0.1%; Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates.
- Weekly Jobless Claims; Feb. 17; Consensus Estimate 390k; Important. An indication of employment. Higher claims may result in lower rates.
- Leading Economic Indicators; Feb. 17; Consensus Estimate Up 0.8%; Important. An indication of future economic activity. A smaller increase may lead to lower rates.
- Philadelphia Fed Survey; Feb. 17; Consensus Estimate 19; Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.
WORLD RATES China’s central bank raised rates for the third time in four months to help ward off inflation as food and energy costs continue to rise. A drought in China is threatening the wheat crop, which is adding further pressure to commodity prices. Other emerging economies are also fearful of a spike in inflation. Market analysts are expecting Brazil’s central bank to raise rates soon. The overnight lending rate there is currently 11.25%. In contrast, the Federal Reserve continues to add stimulus to the US economy keeping rates near zero and buying bonds.
The futures market is now pricing in a near 100% chance the Fed will move rates higher by December. Last week they put the odds of a rate increase at 25%. That is a big change in sentiment in such a short period of time. While interest rates have seen significant increases over the past few months they still remain historically very low. There are no guarantees rates will remain low as recent history has shown.