Below is this week’s market update. Rates ended level with how they started last week, despite some ups and downs. Looks like this week we will be watching stocks and Europe for guidance on where rates will go until Friday’s flurry of reports.
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Market Comment
Mortgage bond prices ended last week near unchanged, which kept mortgage interest rates relatively in check. Trading was choppy with some rate improvements Tuesday, which unfortunately were erased Wednesday and Thursday. Stock strength made it difficult for mortgage bonds to gain any traction. Higher than expected producer price, housing starts, and Philadelphia Fed data also made it difficult for rates to improve.
Mortgage bond prices ended last week near unchanged, which kept mortgage interest rates relatively in check. Trading was choppy with some rate improvements Tuesday, which unfortunately were erased Wednesday and Thursday. Stock strength made it difficult for mortgage bonds to gain any traction. Higher than expected producer price, housing starts, and Philadelphia Fed data also made it difficult for rates to improve.
The employment cost index and PCE core inflation data will be the most important releases this week. The Treasury auctions will be followed closely. If foreign demand falters it could carry over to mortgage backed securities.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| Consumer Confidence | Tuesday, Oct. 25, 10:00 am, et | 46 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
| Treasury Auctions Begin | Tuesday, Oct. 25, 1:15 pm, et | None | Important. 2Y Notes on Tuesday, 5Y Notes on Wednesday, and 7Y Notes on Thursday. |
| Durable Goods Orders | Wednesday, Oct. 26, 8:30 am, et | Down 0.2% | Important. An indication of the demand for "big ticket" items. Weakness may lead to lower rates. |
| New Home Sales | Wednesday, Oct. 26, 10:00 am, et | 287k | Important. An indication of economic strength and credit demand. Weakness may lead to lower rates. |
| Weekly Jobless Claims | Thursday, Oct. 27, 8:30 am, et | 401k | Important. An indication of employment. Higher claims may result in lower rates. |
| Q3 Advance GDP | Thursday, Oct. 27, 8:30 am, et | Up 1.2% | Very important. The aggregate measure of US economic production. Weakness may lead to lower rates. |
| Personal Income and Outlays | Friday, Oct. 28, 8:30 am, et | Unchanged, Up 0.1% | Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates. |
| PCE Core Inflation | Friday, Oct. 28, 8:30 am, et | Up 0.1% | Important. A measure of price increases for all domestic personal consumption. Weaker figure may help rates improve. |
| Q3 Employment Cost Index | Friday, Oct. 28, 8:30 am, et | Up 0.4% | Very important. A measure of wage inflation. Weakness may lead to lower rates. |
| U of Michigan Consumer Sentiment | Friday, Oct. 28, 10:00 am, et | 57 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
Employment Cost Index
The employment cost index is a quarterly report issued by the Department of Labor. The report measures the growth of wages, salaries, and benefits costs over a certain period of time. Though ECI figures are usually weeks old, the data remains the best indicator of employment price pressures considering it factors employees’ total compensation.
The employment cost index is a quarterly report issued by the Department of Labor. The report measures the growth of wages, salaries, and benefits costs over a certain period of time. Though ECI figures are usually weeks old, the data remains the best indicator of employment price pressures considering it factors employees’ total compensation.
If wage pressures become evident, higher expectations of inflation also tend to arise. However, increasing compensation does not necessarily lead to increased inflationary pressures. Oftentimes, increased productivity enables employers to increase compensation without increasing the costs of their goods or services. Be cautious heading into this release.
