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Wednesday, October 14, 2015

Mortgage Bond Market Analysis - Hump Day + Data

It's been a quiet week so far with the holiday on Monday and no data to speak of yesterday.  This morning brought us some more important data with September Retail Sales coming in at .1% vs. estimates of .2%, ex-autos, it's -.3% vs. estimates of -.1%.  September Headline PPI is -.5% vs. estimates of -.3% and Core PPI is -.3% vs. estimates of .1%.  These are all misses on data that the Fed monitors closely.  Remember that retail sales is about 2/3s of our economy and it's not very strong (hence our recover is not very strong).  Weak retail sales means that there isn't a lot of demand for most products and thus the CPI is likely to stay low which means over all inflation will remain low with no real need to raise the Fed Funds Rate (unless they want to create the illusion of a stronger recover in the hopes that people will think the economy is good and they can start spending money - this strategy definitely has some big risks).  With little consumer demand, there is no need for companies to ramp up manufacturing which is why the PPI is staying low since demand for raw materials isn't strong.  Following in line with this is the last bit of data we got today with August Business Inventories coming in at 0% vs. estimates of .1% - this isn't a big factor in pricing but it makes sense give the other data.

From a technical standpoint, we are coming off a four day losing streak but the FNMA benchmark bond only lost 28 basis points over that time.  The RSI is hovering just above the mid-point which means it's a bit closer to overbought than oversold but it's not a factor at this level.  The bond is currently up 20 basis points at 104.48, 9 basis points above the 1st level of resistance and 8 basis points below the 2nd level of resistance.

Lot's of data tomorrow:  It's Thursday so that means Jobless Claims but we also get the CPI along with the NY Empire Manufacturing Index and the Philly Fed Manufacturing Survey.  All of this data could impact interest rates.  I look for the CPI to be weak again, expectations are for -.1% vs. previous of .2%.  Both manufacturing numbers are expected to be weak but not as bad as the previous reading.  If you or a client have a loan closing within 15 days, I'd take advantage of these great rates and the bump we are seeing today and lock.  Otherwise I might roll the dice on tomorrow's data and see if we get further improvement.  Watch the market closely if you do float so that you can act quick and lock in ahead of a reprice for the worse in case the data surprises to the upside.  Make it a great day and feel free to call me if I can help with anything mortgage related:  702-812-1214 or 801-853-8720.

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