Monday, July 17th
Rate hike expectations eased last week amid turmoil in the Middle East and surging energy prices. The financial markets expect economic growth to slow significantly during the second half of this year potentially making another rate hike unnecessary. Fed funds futures traders as of last Friday lowered the probability of a 25 bp rate hike in August to roughly 60%. The week ahead provides several events and indicators that should continue to shape the interest rate outlook.
Industrial production jumped 0.8% in June on strong auto and machinery manufacturing. Mining and utilities output also posted solid gains. June capacity utilization also increased to 82.4% from 81.8% in May. Utilization rates were the highest in 6 years and indicate tighter resource usage which could fan inflationary pressures.
Tuesday, July 18th
The producer price index jumped 0.5% in June compared to expectations for a 0.3% gain. Price gains were broad based across most segments. Excluding food and energy prices the core PPI rose 0.2%, in line with expectations. Over the last year core prices rose 1.9%, which is at the upper range of the Fed's comfort zone.
The NAHB housing market index continued to slide in July, dropping to 39 from a reading of 42 in June. Homebuilder optimism is definitely waning as evidenced by lower ratings of both present and future single family home sales. Also, foot traffic through model homes slowed. The sharply lower trend in this index portends of a slowdown in construction of new homes.
Wednesday, July 19th
The consumer price index rose 0.2% in June in line with expectations and related to a decline in energy prices. Excluding food and energy from the index, core consumer prices rose 0.3% last month and are up 2.7% over the past year. Higher than expected gains in the core CPI over the last several months make another Fed rate hike in August a strong likelihood.
The MBA mortgage applications index fell 4.6% to 540.8% for the week that ended July 14. Purchase applications fell 6.2% on the week while refinancings slipped 1.6%. Because of rising interest rates, mortgage application volume has been trending lower and is now 32.5% lower than levels seen last year.
Housing starts fell 5.3% in June to a seasonally adjusted annual rate of 1.85 million units. June's decline was led by a 6.5% drop in new starts of single family homes. Multifamily starts rose modestly.
Chairman Bernanke’s semiannual testimony to Congress today was more dovish than expected by the financial markets. The Fed Chief said that some moderation in economic growth appears to be underway which could help lower inflationary pressures over time. However, inflation has increased somewhat related in part to higher energy and commodity prices but that recent gains are mostly attributable to owners' equivalent rent or higher shelter costs. Slower home purchasing activity can drive up rents which are really more indicative of a slowing housing market than of rising inflation. Fed funds futures traders were pegging chances of another rate hike at 90% following the CPI data today then odds dropped to around 65% after the Chairman's testimony.
The MBA mortgage applications index fell 4.6% to 540.8% for the week that ended July 14. Purchase applications fell 6.2% on the week while refinancings slipped 1.6%. Because of rising interest rates, mortgage application volume has been trending lower and is now 32.5% lower than levels seen last year.
Housing starts fell 5.3% in June to a seasonally adjusted annual rate of 1.85 million units. June's decline was led by a 6.5% drop in new starts of single family homes. Multifamily starts rose modestly.
Chairman Bernanke’s semiannual testimony to Congress today was more dovish than expected by the financial markets. The Fed Chief said that some moderation in economic growth appears to be underway which could help lower inflationary pressures over time. However, inflation has increased somewhat related in part to higher energy and commodity prices but that recent gains are mostly attributable to owners' equivalent rent or higher shelter costs. Slower home purchasing activity can drive up rents which are really more indicative of a slowing housing market than of rising inflation. Fed funds futures traders were pegging chances of another rate hike at 90% following the CPI data today then odds dropped to around 65% after the Chairman's testimony.
Thursday, July 20th
Mortgage interest rates climbed higher this week after easing somewhat in the week prior. 30-year fixed rate mortgages averaged 6.80% this week compared to 6.74% last week according to Freddie Mac's mortgage market survey. Economists at Freddie Mac say that a higher-than-expected reading in core consumer inflation placed upward pressure on mortgage rates this week.
Jobless claims fell 30k to 304k for the week ending July 15. An end to the New Jersey government shutdown accounted for some of the outsized drop in claims this week. Aside from one time factors the level of claims suggests solid labor market conditions.
Friday, July 21st
Stock Market Close for the Week Index Latest A Week Ago Change DJIA
10868.38 10739.35 +129.03 or +1.20%
NASDAQ 2020.39 2037.35 -16.96 or -0.83%
WEEK IN ADVANCE
The economic calendar this week will focus on housing data and economic growth. Along with new and exiting home sales tallies mid-week we will get the first print on Q2 GDP Friday.
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