Market Comment - Week of April 12th, 2010

Mortgage bond prices rose last week, which helped mortgage interest rates improve slightly. The first portion of the week was generally bond friendly as the Fed minutes showed real concern about the economy's ability to recover with so many job losses. Stocks and bonds generally traded inversely as the DOW tested the 11,000 mark a few times during the week in up and down trading. Unfortunately a large portion of the improvements was erased as oil prices traded around $87/barrel and inflation fears emerged. Despite this, rates still managed to improve by about 1/4 of a discount point for the week.

The consumer price index Wednesday will be the most important release this week. The abundance of important economic releases has the potential to result in a very volatile week for mortgage interest rates. If the data shows signs of weakness we could see rates improve.


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Economic Factors

Economic Indicator
Release Date Time
Consensus Estimate
Analysis

Trade Data
Tuesday, April 13, 2010
$38 billion
Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.

Consumer Price Index
Wednesday, April 14, 2010
Up 0.1%, Core up 0.1%
Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates.

Retail Sales
Wednesday, April 14, 2010
Up 0.2%
Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.

Business Inventories
Wednesday, April 14, 2010
Up 0.1%
Low importance. An indication of stored-up capacity. A significantly larger increase may lead to lower rates.

Fed "Beige Book"
Wednesday, April 14, 2010
None
Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.

Industrial Production
Thursday, April 15, 2010
Up 0.2%
Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates.

Capacity Utilization
Thursday, April 15, 2010
72.5%
Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.

Housing Starts
Friday, April 16, 2010
Down 2.1%
Important. A measure of housing sector strength. Larger than expected decreases may lead to lower rates.




Oil

Inflation fears tied to rising energy prices have reemerged. At one point oil prices rose near $87/barrel last week causing many analysts to revise forecasts. Goldman Sachs and Morgan Stanley both predict oil prices will rise above $100/barrel next year. The concern is that rising energy costs could permeate through the markets and damage economies around the globe that are struggling to regain footing. Inflation, real or perceived, generally erodes the value of fixed income securities causing prices to fall and rates to rise. This could pressure mortgage interest rates higher further stifling a recovery in the US housing sector