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Monday, April 11, 2016

Mortgage Bond Market Analysis - It's all about China, Oil and Retail Sales this week

It's Monday and this week brings a lot more data and potential volatility than we had last week.  As I mentioned in my post on Friday, we will get more data including the PPI, CPI and Retail Sales.  Oil will probably also play an important roll as will China's GDP which comes out on Friday.  These should be the three biggest drivers of interest rate movement this week and you may want to lock ahead of their releases - of course, oil prices fluctuate every day so that's not a release item.  Here's what to look for and how it could impact the market.

Retail Sales:  We get the data on Wednesday and the market is expecting a nice improvement from February's reading of -.1% with an expectation of .4%.  Stronger jobs data as well as rising wages support the notion of better retail sales, however, the consumer credit numbers do not so it is a bit of a guessing game.  A strong retail sales number will be bad for mortgage rates while a weak number will be good for rates.

Oil:  With a big meeting coming up this Sunday in Qatar, expect oil prices to be very volatile as traders try to guess what's going to happen with regard to oil production based on comments throughout the week by various energy czars from oil producing nations.  As sentiment for a freeze in production increases, you can expect oil prices to rise and mortgage bond prices to fall (pushing rates higher).  Conversely, if traders believe that a freeze on output isn't likely, expected oil prices to drop and mortgage bond prices to rise.  We'll find out the results of the meeting on Monday - I would lock by Friday just in case.

China:  Considering the size of China's economy and considering Janet Yellen's comments the last couple of times she has spoken to the press where she has said that the Fed's moves will depend on the strength of the global economy, it's a good bet that if China reports a good GDP, it will not be good for our interest rates as traders will sell bonds based on the belief that the Fed will see an improving global economy as a signal to increase rates.

Import Prices are released tomorrow, the PPI is released on Wednesday along with Business Inventories, the Fed's Beige Book and, of course, Retail Sales.  The CPI is released on Thursday in addition to Weekly Jobless Claims.  Wednesday and Friday are the big hot points of the week.  This morning, the FNMA benchmark bond was down as much as 26 basis points but has rise considerably since then and is currently down only 3 basis points at 102.92 as oil has paired some of its gains.  Assuming oil continues to pair its gains, look for bonds to continue to improve.  Float with extreme caution and keep your eye on my app (buyerZapp) so that you can move quickly if I issue an alert to LOCK.  You can get my app by clicking on the link in the top right corner of the blog.  As always, feel free to contact me if I can help in any way and make it a great day and a better week.

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