Princeton Capital Blog

This Week’s Market Commentary

February 18th, 2013

Mortgage Market CommentaryThis week brings us the release of five pieces of economic data for the bond market to digest along with the minutes from the most recent FOMC meeting. Making things a little more interesting is the fact that all of the week’s events take place over only two days. The financial markets will be closed Monday in observance of the President’s Day holiday, so don’t expect to see new mortgage pricing until Tuesday morning. Due to the holiday, this report will not be updated Monday.

There is nothing of relevance scheduled to be posted Tuesday. The Labor Department will release their Producer Price Index (PPI) for January early Wednesday morning. It measures inflationary pressures at the producer level of the economy and is considered to be one of the key measures of inflation we see each month. There are two portions of the report that analysts watch- the overall reading and the core data reading. The core data is more important to market participants because it excludes more volatile food and energy prices. It is expected to show an increase of 0.3% in the overall reading and a 0.1% rise in the core data. Good news for bonds would be a decline in both readings, particularly the core data as it would ease concerns about future inflation that make long-term securities less attractive to investors.

January’s Housing Starts will also be posted early Wednesday morning, giving us an indication of housing sector strength and mortgage credit demand by tracking new housing construction starts. It usually does not affect rates unless the results vary greatly from forecasts. Current forecasts are calling for a fairly sizable decline in starts of new housing. That would be favorable news for the bond market and mortgage rates because it would point towards economic weakness. A weak housing sector makes a broader economic recovery less likely in the near future.

Wednesday also brings us the release of the FOMC minutes. Traders will be looking for any indication of the Fed’s next move regarding monetary policy, particularly any discussion about modifying the Fed’s current bond buying programs. They will be released at 2:00 PM ET, therefore, any reaction will come during afternoon trading. These minutes may lead to afternoon volatility Wednesday, or they may be a non-factor. However, they do carry the potential to influence mortgage rates so they should be watched.

The sister report to the PPI will be posted early Thursday morning when January’s Consumer Price Index (CPI) is released. The difference between the two is that the CPI measures inflationary pressures at the more important consumer level of the economy. With exception to maybe the Employment report, the CPI is the single most important report that we see each month. Its results can have a huge impact on the financial markets, especially on long-term securities such as mortgage-related bonds. It is expected to show a 0.1% increase in the overall index and a 0.2% rise in the more important core data. If we see weaker than expected readings, bond prices should rise and mortgage rates would likely fall Thursday.

January’s Existing Home Sales report will be released by the National Association of Realtors late Thursday morning. It tracks home resales throughout the country, giving us a measurement of housing sector strength. It is expected to show a slight decline in sales of existing homes, meaning the housing sector remained fairly flat during the month. Ideally, the bond market would like to see a sizable decline in sales because weak housing is one of the hurdles that the economy must overcome to fully recover from the past recession. The longer it takes for the housing market to gain momentum, the longer it will take the broader economy to do the same.

Also late Thursday morning will be the release of the Leading Economic Indicators (LEI) for January. This Conference Board report attempts to predict economic activity over the next three to six months. It is expected to show a 0.3% increase, meaning that economic activity may rise in the near future. A smaller than expected increase would be good news for the bond market and mortgage rates, but the CPI draws much more attention than the LEI. Therefore, for this report to influence mortgage pricing, it will have to show a sizable variance from forecasts and the CPI will have to match estimates.

Overall, I am expecting Thursday to be the most active day for mortgage rates, but Wednesday’s releases are also enough to cause noticeable movement. The least important day is probably Friday as we could see changes to rates Tuesday morning after the long weekend. I am still closely tracking the Dow since it has been unable to break above 14,000 and remain there. The 10-year Treasury Note is still above 2.00%. If it falls below this level and the Dow remains below 14,000, we could be in for a nice rally in mortgage pricing. However, until that happens, I recommend maintaining contact with your mortgage professional if still floating an interest rate as the threat of rates moving higher remains elevated in my opinion.

Princeton Capital

Contact Us

Top Work Places 2014