Monday Market Commentary Jan 18th, 2009: Where Mortgage Rates Are Headed

by Alex Stenback on January 18, 2010

Graphic Courtesy of Econompic Data [link]

Last Week:
It was a good week for mortgage markets last week.  A combination of better than expected inflation reports, worse than expected retail sales and jobless claims, and robust Fed buying moved most mortgage rates lower by .125%-.25%.

A quick note on last week’s inflation numbers (remember, inflation is the arch-enemy of low mortgage rates):  Sharp observers might note that the core-CPI (ignoring volatile commodities food and energy) has been trending slighly higher since the multi year lows set in August.  Question is, should this be a concern? 

Jake, from Econompic Data, whose chart is lifted above, has a take I agreee with:

“…inflation is concentrated in transportation (energy). Until pricing power moves into other areas (and labor), the Fed should have no concerns over keeping rates as low as they are.”

It’s very hard for inflation (of  the ugly, economy-stifling, rate-rising variety anyway) to take hold without broad price increases and also increases in wages – what we’ve seen thus far is fairly narrow.

This Week:
Markets are closed today (Monday, MLK jr. day.)  but for the rest of the week, the reports that stand to have the most impact on markets and home loan rates are:

  •  Producer Price Index, Wed 8.30AM: PPI, much like the consumer price index, is a broadly followed barometer for inflation, but at the wholesale rather than consumer level.  Inflation signs here can portend inflation at the consumer level and economy in general – expectations are that this report indicates little or no inflation.
  • Dec Housing Starts, Wed 8.30AM: Not traditionally a “big” number for rate watchers, but the stock market has been keying on real estate related news, so surprisingly good or bad number here could move stocks.  Home loan rates tend to move in the opposite direction of stocks as money flows out of bonds and into stocks seeking better returns. Expectations are for 580K starts.  My money is on a poor number here – December in one of the worst new home building markets in a generation is not a recipe for a striong showing.
  • Weekly Jobless Claims Thu Jan 21, 8.30AM: Market wants improvement here, if they don’t get, stocks may be hurt and rates may be helped.
  • Philly Fed Index, Thu Jan 21: A “proxy” for national manufacturing sector strength.  Indicators showing a weak economy are usually good for rates, while strength can hurt rates.

There’s also a handful of treasury auctions and auction announcements on Tue, Wed, Thursday.  As always, any surprises from the “supply side” could be rate-moving events, so there’s a  lot to watch (follow me on Twitter for regular updates on these reports as the week unfolds.)

This Week’s Full Economic Calendar [Barrons]

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