Monday Market Commentary: Rates Unchanged, Big Week Ahead

by Alex Stenback on August 11, 2008

Last Week:
Mortgage rates were mostly unchanged last week.  Early on, rates increased after Monday’s PCE (Personal Consumption Expenditures Index – a key measure of inflation) pointed to elevated inflation, and on Tuesday, the Fed elected to keep rates unchanged.  Said events did little to calm the fears of bond investors growing skittish over inflation.

Second half of the week brought some relief as the dollar strengthened, commodity prices eased slightly (calming inflation fears somewhat), and stocks sold off on a negative vibe from Wal-Mart (slow sales warning) and a spike in initial jobless claims.

End result, a round trip, with mortgage rates closing Friday right about where they started the week.

This Week:
For bond market observers (remember, mortgage rates are largely derived from bond prices) the seminal event on the economic calendar this week is the Consumer Price index (CPI), which hits Thursday.  CPI is widely expected to show that July price increases slowed from the torid pace set in June.  Anything short of that will likely push interest rates up, though continued easing of commodity prices, if such a thing materializes, could help to offset an unexpected spike in the July CPI.

Stocks warrant close attention this week as well.  Retail sales report Wednesday, and a lackluster showing here could push money out of stocks and into bonds, helping mortgage rates.  If retail sales remain strong, expect stocks to suck $$ out of bonds and hurt mortgage rates in the process.  Wal-mart and UBS also report earnings, and the state of these two behemoths could drive stocks in their own right.

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