MIG Market Watch, June 8th, 2020

MARKET COMMENT
Mortgage bond prices finished the week lower which put upward pressure on rates. The Fed’s tentative buying amounts reduced again but only slightly. Rates were steady the first part of the week. Stronger data mid-week and Friday sent rates higher. ADP employment fell 2.76M vs the expected 11M decrease. Factory orders fell 13% vs the expected 15% decline. Weekly jobless claims were 1.877M vs the expected 1.9M. Productivity fell 0.9% vs the expected 2.6% decline. The better than expected employment report caused heavy selling pressure Friday morning. Unemployment was 13.3%. Analysts expected a reading of 20%. Non-farm payrolls rose 2.509M. Most expected payrolls to decrease by 8M at the least. Mortgage interest rates finished the week worse by 1/4 to 3/8 of a discount point.

LOOKING AHEAD

Economic Indicator Release Date & Time Consensus Estimate Analysis
3-year Treasury Note Auction Monday, June 8,
1:15 pm, et
None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
10-year Treasury Note Auction Tuesday, June 9,
1:15 pm, et
None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Consumer Price Index Wednesday, June 10,
8:30 am, et
Down 0.1%,
Core down 0.1%
Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates.
30-year Treasury Bond Auction Wednesday, June 10,
1:15 pm, et
None Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates.
Fed Meeting Adjourns Wednesday, June 10,
2:15 pm, et
No rate changes Important. Few expect the Fed to change rates, but some volatility may surround the adjournment of this meeting.
Weekly Jobless Claims Thursday, June 11,
8:30 am, et
1.8M Important. An indication of employment. Higher claims may result in lower rates.
Producer Price Index Thursday, June 11,
8:30 am, et
Up 0.1%,
Core down 0.1%
Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates.
U of Michigan Consumer Sentiment Friday, June 12,
10:00 am, et
71.8 Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

PPI
The producer price index is a measure of prices at the producer level and is important because it is the first inflation report to be released each month. Investors are typically able to gain an initial indication of inflationary pressures from the release. If producer prices are increasing, there is a tendency for producers to pass the increases on to consumers in the form of higher priced goods.

It is important to note that the PPI is only a measure of goods, while the consumer price index is a measure of goods and services. It is possible for the price of goods to remain stable, while the price of services increases. In this scenario PPI would do little to warn of a change in inflationary pressures, while the CPI report would provide an indication of the inflationary effects of the service component.

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