MARKET COMMENT Mortgage bond prices rose last week pushing mortgage interest rates lower. We were positive throughout most of the week as stocks struggled and oil prices fell. The ADP employment figure was lower than expected and weekly jobless claims were higher than expected which generally helped mortgage bonds. Unfortunately the payrolls component of the employment report Friday morning surprised to the upside and some of the earlier improvements were erased. Mortgage bonds ended the week better by about 1/4 of a discount point.
The inflation data will take center stage this week. Any surprises to the upside on the consumer or producer sides will likely put upward pressure on rates. Foreign demand for the auctions this week will also be important.
- 3-year Treasury Note Auction; May 10; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
- Trade Data; May 11; Consensus Estimate $45.5b deficit; Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
- 10-year Treasury Note Auction; May 11; Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
- Weekly Jobless Claims; May 12; Consensus Estimate 455k; Important. An indication of employment. Higher claims may result in lower rates.
- Producer Price Index; May 12; Consensus Estimate Up 0.6%, Core up 0.4%; Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates.
- Retail Sales; May 12; Consensus Estimate Up 0.3%; Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
- 30-year Treasury Bond Auction; May 12; Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates.
- Consumer Price Index; May 13; Consensus Estimate Up 0.6%, Core up 0.2%; Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates.
- U of Michigan Consumer Sentiment; May 13; Consensus Estimate 69.5; Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
CONSUMER PRICE INDEX The Consumer Price Index is widely accepted as the most important measure of inflation. The CPI is a measure of prices at the consumer level for a fixed basket of goods and services. The National Statistics Office and the Bureau of Agricultural Statistics of the Department of Agriculture collect price data for the computation of the CPI. Since it is an index number, it compares the level of prices to a base period. By comparing the level of the index at two different points in time, analysts can determine how much prices have risen in that period. Unlike other measures of inflation, which only factor domestically produced goods; the CPI takes into account imported goods as well. This is important due to the ever-increasing reliance of the US economy upon imported goods. Analysts primarily focus on the core rate of the CPI which factors out the more volatile food and energy prices. Record debt levels continue to weigh heavily upon the financial markets. The Fed has tried to pump up the economy but in doing so has stoked inflation fears.