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Wednesday, May 18, 2016

Economic data mostly stronger with rates being pushed higher

It's Hump day and the data from yesterday didn't help rates.  Oil is off just a bit this morning but not enough to be much help to bond traders who continue to sell into the release of the FOMC minutes today after stronger data yesterday.  At the current price of 102.25, the FNMA benchmark bond has fallen 50 basis points over the last 3 days.  With oils fast rise, one might think there would be some profit taking at the very least but so far there hasn't been any sign of that.  There has been some disruption in the oil supply chain even though the major oil producers are ramping up production.

Yesterday's data was stronger than expected, for the most part, with April Industrial Production coming in at .7%, more than twice the expected .3%.  Capacity Utilization was also stronger than expected at 75.4% vs. estimates of 75%.  Core CPI (YOY) was 2.1% which met expectations and will give reason for the Fed to consider a rate hike at their June meeting.  Building Permits came in at 1.116mil which was weaker than the expected 1.130mil while Housing Starts came in hot at 1.172mil vs. estimates of 1.127mil.  The April CPI (MOM) was .4% vs. expectations of .3% which adds fuel to the rate increase fire for the June Fed meeting.

The RSI is below the oversold level and there are a few things, as mentioned earlier, that may allow the bond to recover a bit from its current price but I'd lean toward locking just in case, especially if your lender has a float-down option (we do) - a float down on a locked rate is rare because there are a number of stipulations that need to be met but I still think locking today is a good way to go.  In addition to Jobless Claims, tomorrow brings the Philadelphia Fed Manufacturing Survey along with the Leading Economic Indicators.  Make it a great day.

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