Mortgage Rate Update, June 14, 2011

Mortgage rates are reacting today to important economic data that it was hoped would clarify the situation that the US economy is facing. Unfortunately, clarity was not provided. Today markets are likely to be volatile, yet mortgage rates will likely hold their initial move throughout the day.

Mortgage Rate Trend Direction:     Up
Economic Reports/Rate Impact:    Producer Price index, 8:30 AM ET, High Rate Impact
                                                                Retail Sales, 8:30 AM ET, High Rate Impact
Key News:                                           China Raises Rates on Inflation Spike

Summary
Mortgage rates move strongly when the direction of the economy is clear.  Today we had data released did not provides the hoped for clarity as to the direction of the US economy. I expect mortgage rates to rise modestly today and to hold the increase.

Impact of economic reports
The Producer Price Index measures the cost of goods to manufacturers.  Over the past several months these costs have trended steadily higher.  Today's report did show a slight increase yet that increase was less than analysts had expected.

The Retail Sales report measures the spending of US consumers on goods and services.  Over the past few months retail sales have been weak.  The number's today continued to be weak, but were slightly better than analyst's expectations.  Taken together today's data confirm that the US economy is weak and in a period of "high risk" relative to future inflation.

Impact of international or political events
China's Central Bank raised interest rates for the ninth time in the past year to try to slow down the economy.  Unfortunately, their data indicate that inflation has risen despite their previous efforts to the highest position of the last three years.  One noted economist suggested that the probability that China's economy would face a "hard landing" (major recession) was growing much more likely.  Another prominent analyst suggested that the inflation in China would begin to impact the US markets very soon as price increases for Chinese manufacturers pass along higher prices to US retailers.