MARKET COMMENT
Mortgage bond prices finished the week lower which put upward pressure on rates. The strange thing with the recent selloff is the fact that it paralleled weakness in stocks. Usually we see an inverse relationship with the 2 markets but not this week. Rates were positive the beginning of the week amid no data. Weekly jobless claims were 239K versus the expected 231K. However, continuing claims were 1901K versus the expected 1884K. There is concern about the new Congressional and White House plans to alter tax policy. Some analysts note that tax cuts could increase deficit spending which will result in additional debt issuance. This caused prices to fall and rates to rise. Preliminary consumer sentiment was 97.8 versus the expected 100.3 reading. We ended the week worse by approximately 1/8 to 1/4 of a discount point.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| Producer Price Index | Tuesday, Nov. 14, 8:30 am, et | Up 0.4%, Core up 0.3% | Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates. |
| Consumer Price Index | Wednesday, Nov. 15, 8:30 am, et | Up 0.3%, Core up 0.1% | Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates. |
| Retail Sales | Wednesday, Nov. 15, 8:30 am, et | Up 1.4% | Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates. |
| Business Inventories | Wednesday, Nov. 15, 10:00 am, et | Up 0.8% | Low importance. An indication of stored-up capacity. A significantly larger increase may lead to lower rates. |
| Weekly Jobless Claims | Thursday, Nov. 16, 8:30 am, et | 240K | Important. An indication of employment. Higher claims may result in lower rates. |
| Philadelphia Fed Survey | Thursday, Nov. 16, 10:00 am, et | 26 | Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. |
| Industrial Production | Thursday, Nov. 16, 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 | Thursday, Nov. 16, 9:15 am, et | 76.1% | Important. A figure above 85% is viewed as inflationary. Weaker figure may lead to lower rates. |
| Housing Starts | Friday, Nov. 17, 8:30 am, et | 1130K | Important. A measure of housing sector strength. Weakness may lead to lower rates. |
INDUSTRIAL PRODUCTIONT
The Federal Reserve releases the Industrial Production report each month. It is a real measure of output from manufacturing, mining, electric, and gas utilities. The data is significant in that it provides an indicator of the state of the economy. Analysts use the data to attempt to determine market direction. The Fed uses the data to help set the course for monetary policy. Generally the Fed likes to see steady growth in the economy with little price pressures.
Mortgage interest rates generally react favorably to weaker than expected industrial production data. In times of economic weakness investors often move out of stocks and into mortgage bonds. When things look good investors often move out of bonds and back into stocks. We have seen these patterns in recent months though it is not a certainty
