Market Reports
A Mortgage Update from Jay Skwierawski for the week of February 24
Hello Everybody!
Mortgage bond prices swung wildly this past week, with mortgage rates moving by a full 1/4% on two separate days. When it was all said and done, mortgage rates rose about 1/4% for the week.
What caused it? Bond traders hate inflation, and the news out on the Consumer Price Index (CPI) this week showed inflation running at its highest level in years (although only slightly higher than the markets were expecting). Reports out on housing and manufacturing helped to soften the blow, and it was a case of one day up, two days down for rates. Then, on Friday, the President of the Dallas Fed, Richard "Loose Lips" Fisher, spoke again, and spooked the markets with his take on inflation and the economy. Were it not for his speech on Friday afternoon, we may have seen rates hold steady for the week. Inflation erodes the purchasing power of the fixed rate of return that comes from bonds, so any inflationary news is usually a catalyst for an increase in bond and mortgage rates.
A quick recap on the news that was:
New Housing Starts came in slightly higher than expected, as did permits to start new homes. Both of these would seem like good news, however the expectations were so low that, even though they were beat, it still showed a new housing market that continues to struggle. The Consumer Price Index (CPI) came in at up .4%, higher than the up .3% that was expected, and the Core CPI (excluding food and energy costs) came in at up .3%, as expected. These numbers showed that inflation is running at or above the Fed's maximum target rate for inflation. Although these numbers were not welcome news, the Fed is so set on trying to prevent a recession, that the markets actually reacted favorably to the news. There's an old saying in the markets "sell on the rumor, buy on the fact", and that's what happened this week. The markets were fearing a bad inflation number so much, that rates rose in the days leading up to the report. Once the report came out, the markets had nothing to fear anymore, and rates actually went down.
Initial Claims for Unemployment were higher than anticipated, and continuing claims came in at a near recessionary level. The Index of Leading Economic Indicators (a gauge for measuring the economy up to 6 months in advance) came in lower for the fourth month in a row, and finally, the Philadelphia Fed Index (a barometer of the economy on the east coast) came in much, much lower than expected. All in all, it should have been a decent week for rates. If not for the Fed President's speech on Friday.
Next week brings a lot of market moving news on the economy:
Monday - Existing Home Sales, which has a moderate impact on rates
Tuesday - The Producer Price Index (PPI), and the Core PPI, which also has a moderate impact on rates
Tuesday - Consumer Confidence - Moderate
Wednesday - Durable Goods Orders - Moderate
Wednesday - New Home Sales - Moderate
Thursday - Gross Domestic Product (GDP) 4th Qtr Revision 1 - Moderate
Thursday - GDP Price Deflator (one of the Fed's favorite inflation measures) - 4th Qtr Revision 1 - HIGH
Thursday - Initial Jobless Claims and continuing claims - Moderate
Friday - Personal Spending and Income - Moderate
Friday - Personal Consumption Expenditures and Core PCE (another inflation measure) - HIGH
Friday - Chicago Purchasing Manager Index (PMI) - HIGH
Friday - Consumer Sentiment - Moderate
We will keep you posted on any wild swings in the market in the week ahead.
Have a great week!
Jay Skwierawski
President
First Sterling Mortgage Services, LLC
737 North Michigan Avenue, #1900
Chicago, IL 60611
312.268.7601
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