MARKET COMMENT Mortgage bond prices fell last week pushing mortgage interest rates higher. Stocks continued to show strength throughout the week. The DOW was generally positive which didn’t help mortgage bonds. There were very few economic releases. The Fed minutes from the last meeting were released and inflation was the focus. The Fed indicated it is important to monitor inflation expectations but noted that a boost to inflation from rising energy costs will likely be transitory. Unfortunately the talk of inflation, real or perceived, generally caused fixed income securities such as mortgage bonds to fall and rates to rise. Mortgage bonds ended the week worse by about 3/8 of a discount point.
The US Treasury will auction 3-year notes on Tuesday, 10-year notes on Wednesday, and 30-year bonds on Thursday. Strong foreign demand is needed in order for rates to push lower.
- Trade Data; April 12; Consensus Estimate $45.5b deficit; Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
- Retail Sales; April 13; Consensus Estimate Up 0.7%; Important. A measure of consumer demand. Weakness may lead to lower mortgage rates.
- Fed “Beige Book”; April 13; Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.
- Weekly Jobless Claims; April 14; Consensus Estimate 380k; Important. An indication of employment. Higher claims may result in lower rates.
- Producer Price Index; April 14; Consensus Estimate Up 1.2%, Core up 0.2%; Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates.
- Consumer Price Index; April 15; Consensus Estimate Up 0.7%, Core up 0.2%; Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates.
- Industrial Production; April 15; Consensus Estimate Down 0.2%; Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
- Capacity Utilization; April 15; Consensus Estimate 76%; Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.
- U of Michigan Consumer Sentiment; April 15; Consensus Estimate 67.3; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
RETAIL SALES Retail sales data is the first indication of weakness or strength in consumer spending released each month. The Bureau of the Census of the US Department of Commerce provides information on how much the consumer spends on the purchase of goods. This data provides the consumption part of the gross domestic product. Retail sales data represents merchandise sold for cash or credit by retailers. Durable goods, such as autos, make up 35% of the figure. The balance consists of non-durables such as gasoline, restaurants, and general merchandise.
There are several drawbacks to the report. The data covers purchases of goods only, not services. It is also not adjusted for inflation and is extremely volatile. Economists are concerned that the current economic uncertainty will continue to curtail consumer-spending habits. Consumers have generally been given credit for sustaining the economy even amid the economic turmoil.