MARKET COMMENT
Mortgage bond prices finished the week higher which put downward pressure on rates. Rates were positive following the holiday amid some instability in the Eurozone especially focused in Spain. Rates were under a little upward pressure in the middle of the week as stocks continued to climb. This reversed some later in the week and we were able to hold some improvements. The producer price index rose 0.4% as expected. However, the core, which excludes volatile food and energy prices, rose 0.4%. Analysts looked for an increase of 0.2%. The Fed minutes gave indication that rate hikes are on the way. Weekly jobless claims were 243K versus the expected 255K. Retail sales were solid. Consumer prices rose 0.5% and the core value rose 0.1%. CPI was expected to rise 0.4% and the core 0.2%. We ended the week better by approximately 1/4 of a discount point.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| Industrial Production | Tuesday, Oct. 17, 9:15 am, et |
Up 0.1% | Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates. |
| Capacity Utilization | Tuesday, Oct. 17, 9:15 am, et |
76% | Important. A figure above 85% is viewed as inflationary. Weaker figure may lead to lower rates. |
| NAHB Housing Index | Tuesday, Oct. 17, 10:00 am, et |
64 | Moderately Important. A measure of single family housing. Weakness may lead to lower mortgage rates. |
| Housing Starts | Wednesday, Oct. 18, 8:30 am, et |
1185K | Important. A measure of housing sector strength. Weakness may lead to lower rates. |
| Fed “Beige Book” | Wednesday, Oct. 18, 2:00 pm, et |
None | Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates. |
| Weekly Jobless Claims | Thursday, Oct. 19, 8:30 am, et |
242K | Important. An indication of employment. Higher claims may result in lower rates. |
| Philadelphia Fed Survey | Thursday, Oct. 19, 10:00 am, et |
22 | Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. |
| Leading Economic Indicators | Thursday, Oct. 19, 10:00 am, et |
Up 0.2% | Important. An indication of future economic activity. A smaller increase may lead to lower rates. |
| Existing Home Sales | Friday, Oct. 20, 10:00 am, et |
5.34M | Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates. |
DECEMBER RATE HIKE
The current odds for a December rate hike hover a little north of 70%. The recent Fed minutes indicated, “Real GDP was expected to rise at a solid pace, on net, in the second half of the year, and by a little more than previously projected, reflecting data on spending that were stronger than expected on balance.” They noted that recent inflation readings “would likely be complicated by the temporary run-up in energy costs and in the prices of other items affected by storm-related disruptions and rebuilding.” Many members “were more worried about upside risks to inflation arising from a labor market that had already reached full employment and was projected to tighten further.” Now is a great time to take advantage of historically favorable rates and avoid market volatility.
