MIG Market Watch, February 17th, 2020
Posted by : Admin
MARKET COMMENT
Mortgage bond prices finished the week lower which put upward pressure on rates. Rates were higher the first portion of the week amid no data and stronger stocks. Trading was choppy the end of the week as coronavirus fears increased but the US and China started the first phase of tariff reductions as agreed upon earlier. Stocks bounced up and down while most of the data was solid Thursday and Friday. Consumer prices rose 0.1% versus the expected 0.2% increase. The core, which excludes volatile food and energy prices, rose 0.2% as expected. Weekly jobless claims were 205K. Analysts looked for a reading of 210K. Retail sales rose 0.3% as expected. Industrial production and capacity use both came in line with estimates. Consumer sentiment was a solid 100.9 versus the expected 99.2. Mortgage interest rates finished the week worse by 1/8 to 1/4 of a discount point.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| NAHB Housing Inde | Tuesday, Feb. 18, 10:00 am, et |
74 | Moderately Important. A measure of single family housing. Weakness may lead to lower mortgage rates. |
| Producer Price Index | Wednesday, Feb. 19, 8:30 am, et |
Up 0.2%, Core up 0.2% |
Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates. |
| Housing Starts | Wednesday, Feb. 19, 8:30 am, et |
1.39M | Important. A measure of housing sector strength. Weakness may lead to lower rates. |
| Weekly Jobless Claims | Thursday, Feb. 20, 8:30 am, et |
203K | Important. An indication of employment. Higher claims may result in lower rates. |
| Philadelphia Fed Survey | Thursday, Feb. 20, 10:00 am, et |
10 | Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. |
| Existing Home Sales | Friday, Feb. 21, 10:00 am, et |
5.41M | Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates. |
FED TESTIMONY
The Fed Chair delivers the Federal Reserve’s semiannual report on monetary policy, familiarly called the Humphrey-Hawkins report, to both the House and Senate Banking Committees in February and July. The report is one of the most important speeches given by the Fed Chair and was originally mandated by the Full Employment and Balanced Growth Act. The remarks made to each committee tend to be identical in nature and address basic economic principles. The areas addressed tend to be the overall state of the US economy, recent developments, economic fundamentals, foreign developments, economic outlook, ranges for growth, and concluding remarks. Senator Hubert Humphrey and Representative Augustus Hawkins originally sponsored the legislation in 1977.
Last week’s testimony signaled a key warning for US debt instruments. Fed Chair Powell’s report indicated “Over the next few months, we expect inflation to move closer to 2 percent, as unusually low readings from early 2019 drop out of the 12-month calculation.” Inflation, real or perceived, is the enemy of low mortgage rates. Increased inflation expectations cause mortgage-backed securities prices to fall and mortgage interest rates to rise. The Fed has been clear for a long time that their inflation goal is 2%. Essentially, they want rates a little higher during times of solid economic growth so that they have room to cut rates in the event the economy falters.
Rates remain historically favorable. Now is a great time to take advantage of rates at these levels and avoid future uncertainty.
