Market commentary

An abundance of economic data and escalating unrest in the Middle East have the U.S. bond and stock markets in a quandary this morning. In the first of today’s economic releases, the initial jobless claims for the week ending February 12th rose from 385k to 410k, slightly above economists’ projections, and signaling continued weakness in the job market. Consumer prices, as measured by the Consumer Price Index rose slightly more-than-expected in January with the headline CPI rising 0.4% in January or 1.6% year over year. The monthly increase is largely attributed to rises in energy (up 2.1%) and food costs (up 0.5%). This increase in food prices is the largest since September 2008.
From the manufacturing sector, the Federal Reserve Bank of Philadelphia’s general economic index rose to 35.9, the highest level since January 2004, and the Conference Board told us its index of Leading Economic Indicators rose 0.1% in January. This is the seventh consecutive month LEI has been positive, which indicates the U.S. economy should continue its expansion for the next 3 to 6 months.

Back to the topic of inflation, the price of cotton topped $2 a pound today in New York trading, for the first time ever. Grain and soft commodity prices are on a steady march higher, as are energy prices.

Speaking of energy prices, the continued unrest in the Middle East and now the threat that Iran will send two warships through the Suez Canal has oil and gold prices higher.

So what do you do with all of this information? The positive economic data coupled with the prospect of higher inflation should have moved interest rates higher. Instead, we see a flight to safety bid in the U.S. Treasury market as global investors take note of the tensions in the Middle East. I believe this gives us a great opportunity to lock in decent rates and prices on your mortgage loans. At the open this morning we saw the yield on the 10 year note drop as low as 3.55%, and it is currently trading between 3.57% and 3.58%. Prices on mortgages have improved by .375% to .50%.