All US markets are closed today in observance of President’s Day.

This week brings us many economic reports that have the potential of moving the markets.  It seems lately that economic reports and market reaction have been somewhat disconnected; however, we still need to pay attention to these reports.

Tuesday

-          NY Empire State Index, economists expecting -23.0 after last months -22.2 reading.  This report gives investors insight into the strength of the manufacturing segment of our economy across New York.  Readings below 0 indicates that manufacturing is contracting and readings above 0 indicate an expansion in manufacturing.  Lower than expected readings are generally seen as a positive for mortgage backed securities and lower mortgage rates.

Wednesday

-          Housing Starts, economists expecting 530,000 after last months 550,000.  This reports the number of residential homes that construction has begun on during each month.  I would like to see a lower number since the real estate market is already loaded with homes for sale.  Less construction of new homes will allow for the amount of existing homes for sale to drop which will help ease price depreciation.

-          Import Prices, economists expecting a -1.4% drop after last months -4.2% drop.   This report measures the change in price of goods and services imported into our country which could lead to inflation.  A positve number would show prices increasing and a negative number shows prices decreasing.  Lower than expected number is a positive for mbs as it would be a sign of less inflation and as stated many times, the biggest enemy to mortgage rates is inflation.

-          Industrial production, economists expecting a -1.3% reading after last months -2.0%.  This report measures the physical output of the nation’s factories, mines and utilities.  A higher number can be seen as a warning for future inflation, so a lower then expected number is a positive for mbs.

Thursday

-          PPI or Producer Price Index, economists expecting a 0.2% reading after last months -1.9%.  This report measures prices at the producer level before they are passed along to consumers.  A higher number can lead to higher prices which is a negative for mbs.  This report is not as impacting as consumer inflation due to producers often do not pass along higher prices to their customers.  A lower number is a positive for mbs and lower mortgage rates.

-          Core PPI, economists expecting a 0.1% after last months 0.2%.  This report excludes food and energy from the reading as they are often very volatile.

-          Jobless Claims, economists expecting 625,000 claims compared to last weeks 623,000 claims.  Generally speaking a higher number is seen as a positive for mbs and lower rates but we have seemed to be disconnected from jobs numbers lately.  Meaning, this report has not moved the market as much as it has in the past.

-          Leading Indicators, economists expecting a -0.1% reading after last months 0.3%.   This report is a composite index of ten economic indicators that should lead overall economic activity.  A higher number is seen as a positive sign for future economic activity, so mbs prefer a lower then expected reading.

-          Philadelphia Fed Index, economists expecting a -25.1 after last months reading of -24.3.  This report is similar to the NY Empire State Index as it measures the strength of manufacturing but this report measures manufacturing around the Philadelphia area.   Readings below 0 indicate contraction and readings above 0 indicate an expanding economy.

Friday

-          CPI, Consumer Price Index, economists expecting a 0.3% reading after last months -0.7%.  This report is a measure of the average price level of a fixed basket of goods and services purchased by consumers and the change from month to month represents the rate of inflation.  Since this report measures inflation on the consumer level, it is more important then the PPI report which we get on Thursday.  A lower reading is a sign of less inflationary pressures which can and often leads to lower mortgage rates.

-          Core CPI, economists expecting a 0.1% reading after last months 0.0%.  This report measures inflation at the consumer level but strips out food and energy from the numbers. 

So, we have a pretty action packed week of reports and I will update you each day with the results and how it is affecting the mortgage backed security market.