MIG Market Watch, January 18th, 2021
Posted by : Admin
MARKET COMMENT
Mortgage bond prices finished the week lower which put upward pressure on rates. Rates worsened sharply Monday and Tuesday in continuation of the recent rate spikes. The selling pressure reversed course the latter portion of the week. Consumer prices rose 0.4% as expected. The core, which excludes volatile food and energy prices, rose 0.1% as expected. The job market data looked dismal. Weekly jobless claims were 965K vs the expected 795K. Producer prices rose 0.3% vs the expected 0.5% increase. The core rose 0.1% vs 0.2%. Retail sales fell 0.7% vs the expected 0.1% decline. Industrial production rose 1.6% vs the expected 0.4% increase. Capacity use was 74.5% vs 73.5%. Consumer sentiment data was 79.2 vs 80.0. 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 |
| Martin Luther King Jr Holiday | Monday, Jan. 18 | Important. Extended holiday weekend may result in volatility Tuesday when trading resumes. | |
| NAHB Housing Index | Wednesday, Jan. 20, 10:00 am, et |
88 | Moderately Important. A measure of single-family housing. Weakness may lead to lower mortgage rates. |
| 20-year Treasury Bond Auction | Wednesday, Jan. 20, 1:15 pm, et |
None | Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates. |
| Weekly Jobless Claims | hursday, Jan. 21, 8:30 am, et |
780K | Important. An indication of employment. Higher claims may result in lower rates. |
| Housing Starts | Thursday, Jan. 21, 8:30 am, et |
1.56M | Important. A measure of housing sector strength. Weakness may lead to lower rates. |
| Philadelphia Fed Survey | Thursday, Jan. 21, 10:00 am, et |
6.8 | Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. |
| 10-year Treasury TIPS Auction | Thursday, Jan. 21, 1:15 pm, et |
None | Important. TIPS will be auctioned. Strong demand may lead to lower mortgage rates. |
| Existing Home Sales | Friday, Jan. 22, 10:00 am, et |
6.46M | Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates. |
HIGHER RATES
Rates spiked considerably higher recently amid elections and political change. Some analysts pointed to concerns that increased government debt and deficits are headed our way. Surging stock prices and plummeting bond prices dominated headlines. The word “stagflation” reemerged as there is concern about rising prices amid a stumbling economic recovery.
Most economists dismiss stagflation talk at this point however note that inflation is always a concern. Inflation, real or perceived, erodes the value of fixed income investments such as mortgage-backed securities. This causes prices to fall and rates to rise. The interesting thing is that rates spiked higher following the November elections back in 2016. Since then, we saw rates hit all-time lows. Short-term rate increases do not necessarily signal long-term rate increases. The Fed is clear they will continue their Treasury and MBS purchases which will buffer upward movements. However, time will tell if the recent increases in mortgage interest rates continue. Now is a great time to take advantage of mortgage interest rates at these still historically favorable levels.
