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Will mortgage applications and initial jobless claims turn around?

Phalguni Soni

Must-know releases that will impact US debt securities this week (Part 7 of 7)

(Continued from Part 6)

Mortgage applications

Besides indicating an increase or decrease in housing activity, mortgage applications also give guidance across other segments of the economy—especially for construction and home furnishing companies. As buying a home is one of the strongest consumer confidence indicators, and since consumption comprises over 70% of the economy, an increase in this indicator is a major bellwether that the overall economy is improving, and this will impact all sectors, causing stock prices to rise and the Fed to cease its policy of economic stimulus, which will cause bond prices to decrease and interest rates to rise.

The Mortgage Bankers’ Association Purchase Applications Index was down 2.0% for the week ending February 12, which may be due to bad weather keeping potential buyers at bay.

What are weekly initial jobless claims?

Weekly initial job claims are an indicator that measures the number of people filing for unemployment insurance for the first time. An increase in initial claims usually implies a slowdown in economic activity, whereas a decrease in initial claims means the economy is picking up.

The initial jobless claims report is due for release on Thursday, February 20, for the week ended February 15. Last week’s release for the week ended February 8 reported that initial claims increased by 8,000, to 339,000, from the previous week’s figure of 331,000. This rise was higher than the consensus estimate of 330,000. The increase implies that employment numbers aren’t gaining traction as expected, which (other things remaining constant) may reduce economic growth and force the Fed to slow its pace of tapering. This in turn would slow the price declines in bond markets expected as a result of the taper and would increase interest rates.

To learn more about how mortgage applications and initial jobless claims affect housing and bond investments, see the Market Realist series Bonds sell off despite weaker releases as emerging markets improve.

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