Mortgage Bonds able to recover and finish off near were they started.

Mortgage rates remained flat last week, as bad news on inflation was offset by bad news on the economy. The mortgage market started the week in "sell-off" mode as fear of an interruption in the flow of oil from and around the Georgia area, due to it's skirmish with Russia, caused oil prices to increase from low levels it had experienced the week before. As this situation seemed to resolve itself with a cease-fire being announced (whether it's a real cease-fire remains to be seen), crude oil prices continued their trek downward. Other events and economic reports of the week included: U.S. Crude oil inventories decreased last week. This sometimes is a sign of increased demand, which could put upward pressures on crude oil prices. Retail Sales for the month of July were reported -0.1%, which was as expected, and bad news for an economy that relies on the consumer. Retail Sales, excluding auto sales was reported at +0.4%, which was slightly worse than expected. The Consumer Price Index (CPI) came in at +0.8%, which was double the +0.4% that was expected, and showed inflation rising at a 5.6% level, year over year - the highest level since January, 1991. The Core CPI, which excludes volatile food and energy costs, was also up higher than expected at +0.3%. Mortgage and treasury bond markets would normally have sold off on such high inflation figures, but didn't, probably due to the fact that these July numbers reflected a period when oil prices rose to $147 per barrel, and they have since fallen back to $113. Markets usually trade on the anticipation of what is to come, and it is starting to anticipate lower oil and gas prices. The market was also helped by a report on first time unemployment claims that showed 450,000 new claims, which was hotter than the 438,000 claims that the market was expecting. This number continues to get worse, and shows a definite weakness in the labor market. Consumer Sentiment, Industrial Production and Capacity Utilization all came in close to expectations. The New York Fed Index came in a bit stronger than expected, but as traders delved into the report, they noticed that the prices paid component of the report showed prices decreasing, which was obviously good news, and bonds rallied as a result. By the end of the week, bonds had traded up and down, and finished mostly flat on the week. Mortgage rates did the same. This week will not have as many economic releases, but those set for release will be carefully watched for signs of inflation and weakness or strength in the underlying economy. In addition, the markets will be keeping an eye on the price of oil, the situation in Georgia and continued strength in the dollar, which has been helping to bring the cost of oil and other commodities down. News scheduled for release this week includes: Tuesday - Producer Price Index - This report shows inflation at the wholesale level. The market is expecting a reading of +0.5%, after a substantial increase of 1.8% in June. This report has a HIGH impact on mortgage rates. Tuesday - Core PPI, excluding food and energy costs - This report shows inflation without volatile food and energy costs. It is expected to show an increase of +0.2% for July, same as in June. (HIGH impact on rates) Tuesday - Building Permits and New Housing Starts are both expected to show decreases in July from June. Better than expected numbers could be a positive sign for the housing market. (Moderate impact on rates) Thursday - Index of Leading Economic Indicators - This report is a "predictor" of the economy in the future. It is expected to show a reading of -0.1% for July, same as in June. (Low impact on rates) Thursday - First Time Unemployment Claims - This report shows the number of people that are applying for unemployment for the first time. It has remained at a high level for the past several weeks. (Moderate impact on rates) Thursday - Philadelphia Fed Index - Shows economic activity in the PA tri-state area. It is expected to show an economy that was slow in July, but not as slow as in June! (HIGH impact on rates) Friday - U.S. Crude Inventories - This report shows the amount of oil "on hand" in the U.S. If this number increases, that sometimes means that there is less demand, and the price of oil goes down. If the number decreases, then this could mean that there is more demand, and the price of oil goes up.