FRIDAY THE 13TH of August, 2010

Retail Sales in July rebounded a little while inflation pressures at the consumer level remained stuck at their lowest levels since the 60's.


Overall retail sales were 0.4% higher last month. Excluding autos, sales were up a more modest 0.2%. The July improvement followed two months of decline. Mortgage investors gave the data little more than a passing glance since it is almost a given the pace of sales will remain anemic until job and wage growth show sustained improvement.


Higher energy costs during the month of July nudged the headline consumer price index higher by 0.4%, the first rise in this metric in four months. But outside the more volatile food and energy components the so-called "core" cost of living crept only 0.2% higher, leaving the year-over year gain at just 0.9% for a fourth consecutive month - a positive for the near-term prospects of steady to fractionally lower mortgage interest rates.


The coming week will offer a respite from all the drama of the past five trading days. Tuesday will be an active day with the release of the July Housing Starts and Building Permits figures, the July Producer Price data together with the July Industrial Production and Capacity Utilization numbers. None of these reports are expected to offer anything sensational enough to influence the direction of mortgage interest rates one way or the other. Thursday's initial jobless claims number might exert some noticeable upward pressure on mortgage rates - but only in the off-chance it shows a headcount decline of 15,000 or more.


In my opinion the trend trajectory of mortgage interest rates will be most influenced by trading action in the stock markets next week. In my judgment should the Dow closes above 10600 -- it will likely move on up to 10800 or so before running out of steam. If this scenario develops look for mortgage interest rates to move fractionally higher. I will consider this assessment to be completely invalid should the Dow close below 10200 - but for the time being I believe the probabilities are tilting in favor of a short-lived but relatively powerful counter-trend rally in the stock market. Heads up.