MARKET COMMENT
Mortgage bond prices finished the week higher which put downward pressure on rates. Rates were stable Monday morning despite stock strength that had the DOW up 264 points early that day. The Senate passed tax reform which had stocks optimistic. Factory orders fell 0.1% versus the expected 0.4% decrease. ADP payrolls rose 190K as expected. Revised Q3 Productivity was 3% versus the expected 3.3% reading. Weekly jobless claims were 236K. Analysts expected a reading of 240K. Unemployment was 4.1% as expected. Payrolls rose 228K versus the expected 200K increase. The strong payrolls component sent stocks sharply higher again Friday. Consumer sentiment was 96.8 versus the expected 98.8 which tempered some of the positive economic outlook. We ended the week better by approximately 1/4 of a discount point.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| Producer Price Index | Tuesday, Dec. 12, 8:30 am, et |
Up 0.4%, Core up 0.2% |
Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates. |
| Consumer Price Index | Wednesday, Dec. 13, 8:30 am, et |
Up 0.2%, Core up 0.2% |
Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates. |
| Fed Meeting Adjourns | Wednesday, Dec. 13, 2:15 pm, et |
25 basis point hike | Important. Most expect the Fed to change rates. Volatility may surround the adjournment of this meeting. |
| Retail Sales | Thursday, Dec. 14, 8:30 am, et |
Up 1.1% | Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates. |
| Weekly Jobless Claims | Thursday, Dec. 14, 8:30 am, et |
238K | Important. An indication of employment. Higher claims may result in lower rates. |
| Business Inventories | Thursday, Dec. 14, 10:00 am, et |
Up 0.2% | Low importance. An indication of stored-up capacity. A significantly larger increase may lead to lower rates. |
| Industrial Production | Friday, Dec. 15, 9:15 am, et |
Up 0.4% | Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates. |
| Capacity Utilization | Friday, Dec. 15, 9:15 am, et |
77% | Important. A figure above 85% is viewed as inflationary. Weaker figure may lead to lower rates. |
GSEs
Government sponsored enterprises (GSEs) are financial services created by Congress. Two of the most important GSEs in the mortgage industry are Fannie Mae and Freddie Mac. These corporations are designed to make credit available to targeted borrowers in an efficient manner. The supply and demand characteristics of Treasury bonds and mortgage-backed securities (MBSs) issued by Fannie and Freddie differ significantly. Treasury securities represent money needed to fund the operations of the US government. MBSs, on the other hand, represent borrowing by homeowners. Because homeowners can sell or refinance their homes, investors in 30-year mortgage-backed securities usually see principal repayment in significantly shorter periods of time. MBSs are part of many retirement accounts, which citizens depend on for income. The Federal Housing Finance Agency tried to preserve those investments while shrinking Fannie and Freddie. Some want to see them completely dissolved and a new system put in place. The ramifications of that could be widespread and the debate continues almost a decade later.
