MARKET COMMENT
Mortgage bond prices finished the week slightly higher which put a little downward pressure on rates. Inflation at the producer level was tame. PPI was unchanged in May and the core value, which excludes the volatile food and energy components, rose 0.3%. The data was very close to estimates. Consumer prices fell 0.1% and the core value, which excludes the volatile food and energy components, rose 0.1%. Market participants expected CPI to be unchanged and the core up 0.2%. The Fed raised rates 25 basis points as expected and warned of future hikes this year. Retail sales fell 0.3%, well below expectations of a 0.1% increase. The weak reading on consumer spending is a worrisome sign and a challenge for the Fed. We ended the week better by approximately 1/8 of a discount point.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| Existing Home Sales | Wednesday, June 21, 10:00 am, et | 5.57M | Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates. |
| Weekly Jobless Claims | Thursday, June 22, 8:30 am, et | 238K | Important. An indication of employment. Higher claims may result in lower rates. |
| FHFA House Price Index | Thursday, June 22, 10:00 am, et | Up 0.5% | Moderately Important. A measure of single family house prices. Weakness may lead to lower rates. |
| 30-year Treasury TIPS Auction | Thursday, June 22, 1:15 pm, et | None | Important. TIPS will be auctioned. Strong demand may lead to lower mortgage rates. |
| New Home Sales | Friday, June 23, 10:00 am, et | 570K | Important. An indication of economic strength and credit demand. Weakness may lead to lower rates. |
OIL
U.S. consumers continue to benefit from relatively tame oil and gas prices. In the early 2000s consumers enjoyed low gas prices with a barrel of oil around $20. By the summer of 2008 oil prices hit all-time highs with prices over $140 a barrel and gas prices rose accordingly. Only a few years ago we were told that $100 a barrel was the new ‘normal.’
Today U.S. crude futures are priced around $55 per barrel. Some attributed the past highs to “peak oil” levels while others argued they were due to supply and demand. Others called it a “bubble” led by speculation and momentum trading. Whatever the cause, inflation fears tied to energy prices, for now, are nowhere in sight.
Today analysts attribute current oil price levels to supply and demand. Most analysts point to China’s reduced demand as a major factor while weakness in the euro zone also plays a part. However, OPEC voted in late May to extend production cuts through March 2018 in an effort to prop up prices. The cuts were initially announced to end this month. There is plenty of supply despite the OPEC cuts as U.S. and Russian production remains solid.
The U.S. Energy Information Administration’s (EIA) recent short-term outlook noted “for the 2017 summer driving season (April–September), U.S. regular gasoline retail prices are forecast to average $2.46/gallon (gal), compared with $2.23/gal last summer. The higher forecast gasoline price is primarily the result of a higher forecast crude oil price. The forecast annual average price for regular gasoline in 2017 is $2.38/gal.”
The next EIA update is scheduled July 11th. A lower price projection for oil and gas would be good news for U.S. consumers.
