Market Comment
Mortgage bond prices finished the week higher which put downward pressure on rates. Rates were flat Monday morning but improved the mornings of Tuesday, Wednesday, Thursday, and Friday. The massive Fed multi-billion-dollar daily MBS purchases continued which drove the downward movements. The data was mixed. Consumer prices rose 0.6% as expected. The core, which excludes volatile food and energy, rose 0.3% as expected. Retail sales rose 9.8% vs 6%. Jobless claims were 576K vs the expected 700K. The Philadelphia Fed business conditions index was 66.6 vs 65. Production rose 1.4% vs 3.2%. Capacity use was 74.4% vs 75.7%. NAHB housing was 83.0 vs 84. Consumer sentiment was 86.5 vs the expected 89. Mortgage interest rates finished the week better by approximately 5/8 to 3/4 of a discount point.
Looking Ahead
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| 20-year Treasury Bond Auction | Wednesday, April 21, 1:15 pm, et |
None | Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates. |
| Weekly Jobless Claims | Thursday, April 22, 8:30 am, et |
620K | Important. An indication of employment. Higher claims may result in lower rates. |
| Existing Home Sales | Thursday, April 22, 10:00 am, et |
6.21M | Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates. |
| Leading Economic Indicators | Thursday, April 22, 10:00 am, et |
Up 0.6% | Important. An indication of future economic activity. A smaller increase may lead to lower rates. |
| New Home Sales | Friday, April 23, 10:00 am, et |
880K | Important. An indication of economic strength and credit demand. Weakness may lead to lower rates. |
Leading Economic Indicators
The index of leading economic indicators (LEI) is a weighted average of eleven economic variables that “lead” the business cycle. It is constructed for forecasting future aggregate economic activity. The eleven variables that make up the LEI measure workers’ hours, initial unemployment claims, new factory orders, vendor performance, contracts and orders for plant and equipment, new housing permits, changes in unfilled orders, prices of raw materials, stock prices, money supply and consumer expectations.
Each of the variables that comprise the index tends to predict (or lead) economic activity. For example, new orders for manufactured goods, new orders for plant and equipment, and new building permits are all direct measures of the amount of future production being planned for the economy.
Analysts monitor the LEI to predict future economic growth. When the LEI report is up, mortgage market participants expect credit demand to increase and inflationary pressures to build. Thus, when the LEI report is rising, interest rates tend to rise as well. The LEI report is a valuable forecasting device that often correctly predicts economic turning points. The percentage change in the LEI is reported monthly and is an indication of the activity that will occur within the next three to six months. The LEI tends to turn down before peaks in the business cycle. Continuous declines are generally accepted as evidence that a recession continues.
Nine of the eleven components that make up this index are known before the release of the report, so the index is easier for economists to predict than other data releases. Thus, although this is important predictive data for market participants, major surprises are not common with the release of this data.
