For My Mortgage Readers

If yesterday's MBS trading is any indication, this could prove is an interesting week as for the first time in two weeks, credit market investors won’t be dealing with a new round of massive incoming supply from Uncle Sam. Look for the trend trajectory of mortgage prices over the next five business days to be most influenced by Wednesday’s April Retail Sales figures and the trading action in the stock markets.

There's some debate in my capital market circles regarding the sustainability of the recent upturn in the underlying trend of the retail sales numbers and the lowing of the CPI (cause of gas prices). Some argue that the better-than-expected series of monthly retail sales data is more a function of the “Circuit City effect” – a one-time event where consumers run out to buy items at sharply discounted prices from stores going out of business. Other analysts (one being a good friend of mine) are concerned that the impact of temporary factors like tax rebate and fiscal stimulus checks has created a false picture of activity in the retail sector. I happen to disagree and leaning toward the prior analysis.

Mortgage investors will look to Wednesday’s April Retail Sales report to help sort things out. A report that matches or exceeds the consensus estimate will be viewed as an indication that the recent bounce in consumer confidence may be sustainable – a view that will tend to be mortgage interest rate unfriendly. A round of weaker-than-expected sales numbers will likely create a chill in the stock markets – sending stock prices lower to the direct benefit of steady to perhaps fractionally lower mortgage interest rates.

Economic Calendar
Release Date & Time
Economic Indicator
Consensus Estimate
My Analysis

Mon. May 11, before the end of the day
The Fed will be conducting the first of a three-day outright purchase of Treasury obligations. This event proved to be highly positive for lower mortgage interest rates.

Tue. May 12, before the end of the day
This is the second-day of a three-day Treasury purchase operation by the Fed. Normally I would suggest this event prove to be at least a slight positive for the prospect of steady to perhaps fractionally lower mortgage interest rates. But given yesterday's massive rally, I am a little more hesitant to call anything higher.


Wed. May 13, 8:30 a.m. ET
Apr. Retail Sales
Ex. Auto
0.0% vs. last -1.2%
+0.2% vs. last -0.9%
If the actual numbers match or exceed the consensus estimate this report will tend to be mortgage interest rate unfriendly. In the unlikely event that either of the two components of this report proves to be weaker than expected -- look for equities and interest driven vehicles to creep fractionally lower.

Wed. May 13, 8:30 a.m. ET
Mar. Business Inventories
-1.0% vs. last -1.3%
This old stale bit of macro-economic news will likely do nothing more than take up space on this week’s calendar.

Wed. May 13, before the end of the day
The Fed will make one more foray into the credit markets as they wrap up a three-day operation of direct purchases of Treasury obligations (part of their $300 billion effort keep the lid on consumer and business interest rates).

Thurs. May 14, 8:30 a.m. ET
Initial jobless claims for the week ended 5/9
Up 9,000
The census around first-time jobless benefit claims are expected to post a very small increase. Should this be accurate, look for this data to have little, if any meaningful impact on the fixed income market today.


Thurs. May 14, 8:30 a.m. ET
Apr. Producer Price Index
Core Rate
+0.1% vs. last -1.2%
+0.1% vs. last 0.0%
The modest expected rise in the headline producer price index will not likely create much concern among investors. More importantly the core rate, a value excluding the volatile food and energy components, likely remained extremely low.

Fri. May 15, 8:30 a.m. ET
Apr. Consumer Price Index
Core Rate
-0.1% vs. last -0.1%
+0.1% vs. last +0.2%
Given the much larger issues in the market, this data will likely exert little, if any influence on the direction of mortgage interest rates today. Gasoline prices slumped in March resulting in a drop in headline consumer inflation. Excluding the volatile food and energy components, core inflation at the consumer level remained near multi-month lows.


Fri. May 15, 9:15 p.m. ET
Apr. Industrial Production &
Capacity Utilization
-0.6% vs. last -1.5%
68.8 vs. last 69.3
The continued massive decline in the manufacturing sector is expected to have unabated during the month of April. This data will likely have little, if any influence on the direction of market interest rates today.

Have a productive week.