Mortgage Market Review - 9/14/09

This Morning…Monday, September 14, 2009:
No economic data to think about today, but the calendar this week has a lot to chew on. Much of the weekend talk centered on increasing trade tensions with China. President Obama imposed tariffs on Chinese tires, as the worlds fastest- growing major economy said it is investigating U.S. sales of chicken and auto products. At mid-day Pres Obama is coming to Wall Street to speak on the economic mess and likely something on the China situation. As this is the 1st anniversary of the Lehman Bros failure which was the trigger of the financial system meltdown, he will spend most of his efforts talking about financial system reforms. The market will likely take its signs from the stock market today.

Last Week:
Mortgage bond prices rose last week pushing mortgage interest rates slightly lower. The US Treasury auctions went well with relatively strong foreign demand for most issues. The gains came as the Fed continued to pour billions into mortgage bonds in an effort to keep rates low to stabilize the housing sector of the economy. The data was mixed as weekly jobless claims came in better than expected and the Fed "Beige Book" indicated inflation remained in check.

This Week:
Whereas last week we didn’t have much news, aside from the well-received auctions which helped rates, this week we have the monthly inflation reports. The Producer Price Index (PPI) comes out tomorrow, focusing on the increase in prices of "intermediate" goods used by companies. The Consumer Price Index (CPI) comes out Wednesday, and is watched closely since it looks at the price changes that consumers see. Given the current economic environment, inflation is not a major issue, but these can definitely move the markets. We also have Retail Sales tomorrow, Industrial Production and Capacity Utilization comes out Wednesday, on Thursday we have Jobless Claims, Housing Starts, and the Treasury’s announcement of the size of next week’s auctions.

EconomicIndicator
Producer Price Index
Tuesday, Sept. 15,8:30 am, et
Up 0.8%,Core up 0.1%
Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates.
Retail Sales
Tuesday, Sept. 15,8:30 am, et
Up 1.6%
Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
Business Inventories
Tuesday, Sept. 15,10:00 am, et
Down 0.8%
Low importance. An indication of stored-up capacity. A significantly large increase may lead to lower rates.
Consumer Price Index
Wednesday, Sept. 16,8:30 am, et
Up 0.4%,Core up 0.1%
Important. A measure of inflation at the consumer level. Lower figures may lead to lower rates.
Industrial Production
Wednesday, Sept. 16,9:15 am, et
Up 0.7%
Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates.
Capacity Utilization
Wednesday, Sept. 16,9:15 am, et
69.1%
Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower interest rates.
Housing Starts
Thursday, Sept. 17,8:30 am, et
Up 1.2%
Important. A measure of housing sector strength. Weakness may lead to lower rates.
Philadelphia Fed Survey
Thursday, Sept. 17,10:00 am, et
None
Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.

Market Forecast:
The consumer price index will be the most important data this week. If inflation indications are tame rates will likely hold steady or improve. However, if inflation increases look for mortgage interest rates to spike higher.
There are no Treasury auctions this week, but on Thursday markets will begin thinking about it again when Treasury announces the following week's offerings (2 yr note, 5 yr note and 7 yr auction); likely the total will be in the $109B range. Normally supply puts pressure on the rate markets but recent auctions have met with solid demand, thus traders are not quite as interested. Keep alert for Barney Frank, he is back and he is at the ready to reek more havoc on the mortgage industry. Likely there will continuing concern over the health care issue. Still the giant in the room is the equity markets; no signs of it weakening.

Some Humor:
The coach had put together the perfect team for the Oakland Raiders. The only thing that was missing was a good quarterback. He had scouted all the colleges and even the Canadian and European Leagues, but he couldn't find a ringer who could ensure a Super Bowl win.
Then one night while watching CNN he saw a war-zone scene in Afghanistan. In the background, he spotted a young Afghan Muslim soldier with a truly incredible arm. He threw a hand-grenade straight into a 10th story window 50 yards away.
KABOOM!
He threw another hand-grenade 75 yards away, right into a chimney.
KA-BLOOEY!
Then he threw another at a passing car going 50 mph.
BULLS-EYE!
"I've got to get this guy!" Coach said to himself. "He has the perfect arm!" So, he brings him to the States and teaches him the great game of football. And the Raiders go on to win the Super Bowl.
The young Afghan is hailed as the great hero of football, and when the coach asks him what he wants, all the young man wants is to call his mother.
"Mom," he says into the phone, "I just won the Super Bowl!"
"I don't want to talk to you, the old Muslim woman says."You are not my son!"
"I don't think you understand, Mother," the young man pleads. "I've won the greatest sporting event in the world. I'm here among thousands of my adoring fans."
"No! Let me tell you!" his mother retorts. "At this very moment, there are gunshots all around us. The neighborhood is a pile of rubble. Your two brothers were beaten within an inch of their lives last week, and I have to keep your sister in the house so she doesn't get assaulted!"
The old lady pauses, and then tearfully says, "I will never forgive you for making us move to Oakland!”

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