Dorchester Commercial Real Estate

Mixed economic reports kept pressure on U.S. Treasuries Thursday morning. Strong retail sales were countered by a benign Consumer Price Index that showed inflation to be well under control. But sellers outweighed buyers, sending yields, which move in the opposite direction of prices, up. The relentless increase in Treasury yields this week has kept upward pressure on mortgage rates, which have edged higher at the close of each trading session.

The Consumer Price Index (CPI), which looks at inflation at the retail level, was reassuring for both stocks and bonds. CPI was unchanged in June after falling negative by 0.1 percent in May. Analysts had expected a 0.3 percent increase. And the core index, which eliminates volatile food and energy prices, outpaced forecasts, rising only 0.1 percent - duplicating the May increase. This news was good for Treasuries, as inflation erodes the value of fixed-rate assets such as bonds.

Retail Sales for June were another story. Sales climbed by a healthy 1.7 percent -- far stronger than the expected 0.9 percent increase -- after coming in negative 0.3 percent in May. Excluding auto sales, sales rose 0.7 percent - outpacing analysts' expectations. These numbers bode well for economic growth, as consumer spending is responsible for roughly two-thirds of GDP. But bond traders see it as a reason for continued Fed tightening.

Weekly first-time unemployment claims for the week ended July 8 rose more than forecast, climbing to 336,000. An increase was expected, however, as factories retooled and school closings temporarily eliminated the need for service jobs. The more closely watched four-week average inched up to 320,750. And continued claims - people collecting benefits for more than one week - rose to 2.62 million.

Stocks Rally on News, Earning and Slump in Oil

Stocks opened to the upside on Thursday, bolstered by strong economic reports, some better-than-expected corporate earnings and a slide in the price of oil, which is below $59 a barrel. The Dow Jones Industrials, although off their highs, are being led by GM, which is up more than 2 percent after an upgrade, as is Disney. Only three components are in negative territory, led by Exxon.

The Nasdaq composite is headed for a sixth straight gain, led by stellar earnings reports from Apple Computer and AMD. These added to the tech sector climb, which has been in high gear most of the week. Most of the tech bellwethers are trading up, led again by JDS Uniphase, which has added 5.5 percent. Another four big-cap techs have added more than 1 percent. Oracle is trading down, as is Cisco Systems, which was downgraded.

At 10:45 a.m. CDT:

The Dow 30 Industrial Index was up 63.93 points or 0.61 percent at 10,621.32; the Nasdaq Composite index was up 9.07 points or 0.42 percent at 2,153.18, and the benchmark Standard & Poor's 500 Index gained 3.89 points or 0.32 percent to 1,227.18.

The 30-year Treasury bond was down 4/32 in price with the yield firming to 4.40 percent from 4.39 percent at Wednesday's close.

The 10-year Treasury note was off 1/32 in price with the yield sticking at 4.16 percent, unchanged from Wednesday's closing.

The 5-year Treasury note price change was unavailable, but the yield stood at 3.96 percent versus 3.95 percent at Wednesday's close.

At 10:00 a.m. CDT, AVERAGE mortgage rates (zero discount points) based on rates collected nationwide were:

The 30-year Conventional Fixed-Rate Mortgage was at 5.527 percent from 5.497 percent at Wednesday's close. The 15-year Conventional Fixed-Rate Mortgage was at 5.119 percent versus 5.07 percent at Wednesday's close.

Coming Up

After Thursday's glut of data indicating a stronger economy, Friday's slate of reports is similarly full and also could prove market-moving. It features the Producer Price Index for June, expected to rise 0.4 percent, with the core rate seen firming 0.1 percent, after May's 0.6-percent overall decline and 0.1-percent core rise. The June Industrial Production report is forecast rising 0.4 percent after a similar gain the prior month. Capacity Utilization is forecast edging up to a 79.6-percent rate from 79.4 percent.

July's New York Empire State Manufacturing Index is forecast slipping to 9.0 after June's rise to 11.6. May U.S. Business Inventories are seen gaining 0.4 percent vs the previous month's 0.3-percent increase. And the preliminary University of Michigan Consumer Sentiment index is expected at 94.5, off from the prior reading of 96.0.

Given the recent upward push in interest rates and equities, lenders likely will still see some upside potential for mortgage rates overnight until they see whether Friday's data confirm or refute the notion that the economy is still holding its own.

Carolyn Siegel

carolyn@interest.com

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