Mortgage rates
hit recent lows early last week, only to rise again later in the week
as mortgage-backed securities sold off. The primary drivers of the
market action of late have been the stock rout in China (and the fears
of slowing growth that accompany that sell-off). This has made the
market wildly unpredictable, and has caused bond yields to be all over
the place. Last week’s Primary Mortgage Market Survey from Freddie Mac
showed that rates fell to 3.84%, but that was mostly reflective of
conditions early in the week. Rates are effectively a little higher
than that now. This morning MBS are rallying a little bit, and rates
are under a small amount of downward pressure.
Today (and yesterday’s) economic data:
This week is fairly data-intensive, but today’s data is not especially influential:
- Chicago PMI came in a little below expectations, with a print of
54.4 versus expectations of 54.9. New orders slowed, and order backlogs
were in contraction for the seventh consecutive month. The labor
component of the report was in contractionary territory for the fourth
consecutive month. This report in and of itself wasn’t awful, but there
are some bad harbingers here.
- The Dallas Fed Manufacturing Survey… oof. The consensus prediction for August was -2.5. The print was -15.8.
This is coming off a July print of -4.6. This report is obviously
heavily influenced by the steep decline in oil prices, so I don’t know
if this should be written off as aberrational, or what. It’s a bad
report, but I don’t know that it will impact the markets all that much.
Manufacturing continues to struggle. This is nothing new, and has
been the case all year. The strong dollar and falling commodity prices
(particularly oil) continue to weigh on the sector. So it goes.
Looking Back:
Well, last week was a crazy week. Bond were driven by equities,
which were in turn driven by events in China. Stocks started off the
week *way* down, and bond rallied as a a result. Yields on 10-year
Treasuries fell to as low as 1.92% on Monday at the depths of the stock
sell-off. Mortgage backed securities, which trade at a spread to
Treasuries, rallied accordingly, and for a brief period rates were at
3-4 month lows. Equities rebounded as the week wore on, and bond yields
rose as high as 2.20% on Thursday, and then fell back to the 2.15%
range on Friday, which is currently where they are sitting. It was a
crazy week, and the situation in China is far from settled. It seems
very likely that we’re going to continue to see pretty wild swings in
the near term.
Looking Ahead:
Well, there’s plenty of domestic data this week, much of which is
predicted to be similar to last month’s data. Among the highlights, we
get the August ISM Manufacturing report tomorrow, International Trade on
Thursday, and the August jobs report on Friday. The consensus for the
employment report is that the economy will have added 223k jobs, which
is more or less where the report has been for months now. As I noted
above, the market has mainly been moved by overseas influences, which
makes it exceedingly difficult to say with any certainty where things
will be at the end of the week. That said, it’s worth burning a few
words about the Fed, which is oddly unperturbed by the low rate of
inflation.
What’s up with the Fed?
Last week the core PCE Deflator for July was published, and it showed
growth of 1.2%, year-over-year. This is one of the key metrics by
which the Fed gauges inflation. The Fed’s target for inflation is 2%,
and we haven’t been close to that goal anytime recently. The strong
dollar and the fall in commodity prices should prove disinflationary for
the U.S. and one would think that we should see
even less
inflation moving forward. The Fed, which has consistently predicted
higher inflation over the past several years, only to see their
predictions fall flat, seems nonplussed by this situation, and still
seems intent on hiking rates this year. if you believe the various
interviews and speeches that came out of the Jackson Hole Symposium.
Tim Duy put up a nice
run-down of this on Friday. I’d suggest reading the whole thing, but this is the jist of it:
“The Fed very much wants to ignore the inflation data and
follow the labor markets. And even as inflation drifts further away
from their target, they keep doubling down on their bets. It’s what the
Phillips curve is telling them they should do.
Bottom Line: The Fed doesn’t want to take September off the table.
Many officials had what they believed was a solid case for hiking rates
at the next meeting, and they don’t want market turmoil to undermine
that case. And that case is not complicated. It’s the Phillip curve
combined with an estimate of full employment (an estimate of full
employment that remains sticky despite the persistent downtrend in
inflation). If they move in September, that’s the story they will run
with. They don’t have another paradigm.”
Seems to me that a near-term hike would have a neutral impact at
best, and would be disastrous at worst. I cannot see how it would be
good, except to maintain the Fed’s “integrity,” as they’ve been talking
about hiking for what seems like forever now. I understand they don’t
want to be perceived as looking at one month’s data, and reacting. But
when things change drastically, it seems imprudent/strangely inflexible
not to react. As Bob Dylan once said, “you don’t need a weatherman to know which way the wind blows.”
As for mortgage rates?
Mortgage rates are going to move with Treasury yields, and Treasury
yields are currently being moved by stocks which are being moved by
overseas influences, and to a degree, the Fed. As some point things
will settle down, but right now we’re all over the place. I’ve backed
away from a prediction of 30-year rates ending the year between
4.25-4.50%, but if the Fed hikes in September (or October), I do believe
that rates will spike. Right now we’re enjoying a dip in rates, and if
I were looking for a mortgage, I would take advantage of it.
And now for something completely different:
Is there a more
dysfunctional organization
on this planet than the Washington Redskins? Perhaps one of the
European governing bodies? Perhaps. I don’t care one way or another
about the Skins, but it’s certainly a fun show to watch. It’s a little
reminiscent of the 80’s Steinbrenner Yankees.
This week’s economic data that could impact mortgage rates:
Monday:
- Chicago PMI
- Dallas Fed Manufacturing Survey
Tuesday:
- PMI Manufacturing Index
- ISM Manufacturing Index
- Construction Spending
Wednesday:
- ADP Employment Report
- Factory Orders
Thursday:
- International Trade
- Weekly Jobless Claims
- ISM Non-Manufacturing Index
Friday:
#robertdarvish #bobbydarvish #mortgagerates #platinumlending #orangecounty #loan #finance #realestate #homepurchase #homerefinance #interestrates #darvish
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