MARKET COMMENT
Mortgage bond prices finished the week sharply lower which caused rates to spike higher. The selling pressure started Wednesday and continued through the end of the week. Industrial production rose 0.9% versus the expected 0.6% increase. Capacity use came in at 77.9 versus the expected 77.5 mark. NAHB housing was a weaker than expected 72. Analysts looked for a reading of 74. The Fed Beige Book added fuel to the selling pressure. Weekly jobless claims were 220K versus the expected 251K. This was the lowest level since February 1973. Housing starts were 1192K. Analysts expected starts at 1280K. Consumer sentiment was 94.4 versus the expected 97 reading Friday morning but did little to stem the negative trend. We ended the week worse by approximately 3/8 of a discount point.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| Treasury Auctions Begin | Tuesday, Jan. 23, 1:15 pm, et | None | 2Y Notes on Tuesday, 5Y Notes on Wednesday, and 7Y Notes on Thursday. |
| FHFA House Price Index | Wednesday, Jan. 24, 10:00 am, et | Up 0.6% | Moderately Important. A measure of single family house prices. Weakness may lead to lower rates. |
| Existing Home Sales | Wednesday, Jan. 24, 10:00 am, et | 5.8M | Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates. |
| Weekly Jobless Claims | Thursday, Jan. 25, 8:30 am, et | 230K | Important. An indication of employment. Higher claims may result in lower rates. |
| New Home Sales | Thursday, Jan. 25, 10:00 am, et | 740K | Important. An indication of economic strength and credit demand. Weakness may lead to lower rates. |
| Leading Economic Indicators | Thursday, Jan. 25, 10:00 am, et | Up 0.3% | Important. An indication of future economic activity. A smaller increase may lead to lower rates. |
| Q4 GDP | Friday, Jan. 26, 8:30 am, et | Up 3.3% | Very important. The aggregate measure of US economic production. Weakness may lead to lower rates. |
| Durable Goods Orders | Friday, Jan. 26, 8:30 am, et | Up 1.2% | Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates. |
HIGHER RATES
Mortgage interest rates are higher lately as the Fed is expected to continue raising rates this year. There is very little chance of a hike at the January 31st meeting after the Fed raised rates at the end of last year. However, the odds of another hike in March exceed 70%. The Fed Beige Book noted “the 12 Federal Reserve Districts indicated that the economy continued to expand from late November through the end of the year, with 11 Districts reporting modest to moderate gains and Dallas recording a robust increase. The outlook for 2018 remains optimistic for a majority of contacts across the country.” In addition, “Most Districts cited on-going labor market tightness and challenges finding qualified workers across skills and sectors, which, in some instances, was described as constraining growth. Several Districts noted elevated demand for manufacturing and construction labor. Most Districts said that wages increased at a modest pace.”
An expanding economy with a tight labor market paves the way for rate hikes sooner rather than later. Now is a great time to take advantage of historically favorable rates.
