The Colley Team Blog

Market Comment - Week of March 15th, 2010

Mortgage bond prices fell last week applying slight upward pressure on home loan rates. The market remained very volatile within a narrow range. With the lack of data the first portion of the week, oil prices factored into trading. Oil remained above $80 a barrel, which reignited inflation concerns. The retail sales report released Friday was much stronger than expected, indicating the US economy may be getting stronger.

Rates rose about 1/8 of a discount point for the week.

The Fed meeting Tuesday afternoon will be the most important event this week. The inflation data from both the consumer and producer sides will also take center stage. Signs of inflation are generally not received well by the mortgage bond market. If inflation remains in check, mortgage bonds could benefit.


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Economic Factors

Economic Indicator
Release Date Time
Consensus Estimate
Analysis

Industrial Production
Monday, March 15, 2010
Up 0.1%
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.

Capacity Utilization
Monday, March 15, 2010
72.3%
Important. A figure above 85% is viewed as inflationary. A decrease may lead to lower mortgage interest rates.

Housing Starts
Tuesday, March 16, 2010
Down 0.6%
Important. A measure of housing sector strength. A larger than expected decrease may lead to lower rates.

Fed Meeting Adjourns
Tuesday, March 16, 2010
No change
Important. Few expect the Fed to raise rates, but some volatility may surround the adjournment of this meeting.

Producer Price Index
Wednesday, March 17, 2010
Unchanged, Core up 0.1%
Important. An indication of inflationary pressures at the producer level. Decreases may lead to lower rates.

Consumer Price Index
Thursday, March 18, 2010
Unchanged, Core up 0.1%
Important. A measure of inflation at the consumer level. Lower than expected increases may lead to lower rates.

Leading Economic Indicators
Thursday, March 18, 2010
Up 0.2%
Important. An indication of future economic activity. A smaller increase may lead to lower rates.

Philadelphia Fed Survey
Thursday, March 18, 2010
17.5
Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.




Producer Price Index

The producer price index is a measure of prices at the producer level and is important because it is the first inflation report to be released each month. Investors are typically able to gain an initial indication of inflationary pressures from the release. If producer prices are increasing, there is a tendency for producers to pass the increases on to consumers in the form of higher priced goods. It is important to note that the PPI is only a measure of goods, while the consumer price index is a measure of goods and services. It is possible for the price of goods to remain stable, while the price of services increases. In this scenario PPI would do little to warn of a change in inflationary pressures, while the CPI report would provide an indication of the inflationary effects of the service component. This distinction between the two reports shows why most analysts view the CPI as a more accurate indicator of inflation. Nevertheless, market participants still gain valuable insight into potential volatility in the financial markets from the PPI release.

Be cautious heading into the inflation data and Fed meeting this week.