![Mortgage Investors Group in [Dynamic1]](../assets/images/mortgage-investors-group.svg)
Market Comment
Mortgage bond prices finished the week slightly lower which put upward pressure on rates. All the changes throughout the week were generally within a very narrow margin. However, the overall trend resulted in higher rates as equities showed solid gains. The data was mixed. Retail sales rose 0.4% vs 0.3% which was not rate friendly. However, weekly jobless claims were 241K vs 260K which countered some of the negative sentiment. Philadelphia Fed was 10.3 vs 3. Industrial production fell 0.3 vs the expected 0.2 decline. Capacity use was 77.5% vs 77.8%. NAHB housing was 43 vs 42. Housing starts were 1.354M vs 1.35M. Mortgage interest rates finished the week worse by approximately 1/8 to 1/4 of a discount point.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
|---|---|---|---|
| Leading Economic Indicators | Monday, Oct. 21, 10:00 am, et | Down 0.3% | Important. An indication of future economic activity. Weakness may lead to lower rates. |
| Existing Home Sales | Wednesday, Oct. 23, 10:00 am, et | 3.9M | Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates. |
| Fed “Beige Book” | Wednesday, Oct. 23, 2:00 pm, et | None | Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates. |
| New Home Sales | Thursday, Oct. 24, 10:00 am, et | 710K | Important. An indication of economic strength and credit demand. Weakness may lead to lower rates. |
| Durable Goods Orders | Friday, Oct. 25, 10:00 am, et | Down 0.9% | Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates. |
| U of Michigan Consumer Sentiment | Friday, Oct. 25, 10:00 am, et | 68.9 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
LEI
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.
