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Market
Comment
Mortgage bond prices finished the week slightly lower which put additional upward pressure on rates. Rates improved Tuesday morning, traded sideways Wednesday and Thursday, and ended the week on a negative note. The Middle East conflict continued to impact the economy, inflation fears, and mortgage interest rate direction. The Fed left rates unchanged as expected. The data was generally tame but was not enough to push rates lower. Durable goods orders rose 0.3% vs 2.5%. FHFA House price index rose 0.3% vs 0.2%. Consumer confidence was 90.8 vs 92.3. Weekly ADP employment rose 15K vs 16.5K the prior week. Income was up 0.2% vs 0.3%, Spending rose 0.3% as expected. Core PCE inflation was up 0.1% vs 0.2%. Employment cost index rose 0.9% vs 0.8%. Mortgage interest rates finished the week worse by approximately 1/8 to 1/4 of a discount point amid considerable negative volatility.
LOOKING
AHEAD
|
Economic
Indicator |
Release
Date &
Time |
Consensus
Estimate |
Analysis
|
| ISM Index |
Monday, Aug. 3,
10:00 am, et
|
54
|
Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates.
|
| Construction Spending |
Monday, Aug. 3,
10:00 am, et
|
Up 0.2%
|
Low importance. An indication of economic strength. Significant weakness may lead to lower rates.
|
| Trade Data |
Tuesday, Aug. 4,
8:30 am, et
|
$73B deficit
|
Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
|
| Factory Orders |
Tuesday, Aug. 4,
10:00 am, et
|
Up 0.5%
|
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
|
| ADP Employment |
Wednesday, Aug. 5,
8:30 am, et
|
75K
|
Important. An indication of employment. Weakness may bring lower rates.
|
| Preliminary Q2 Productivity |
Thursday, Aug. 6,
8:30 am, et
|
Up 0.7%
|
Important. A measure of output per hour. Improvement may lead to lower mortgage rates.
|
| Employment |
Friday, Aug. 7,
8:30 am, et
|
4.3%,
Payrolls +91K
|
Very important. An increase in unemployment or weakness in payrolls may bring lower rates.
|
Fed Changes
Fed Chair Warsh started his first few months with some considerable changes. He reduced forward guidance and shortened official statements. Prior to taking the helm he indicated he would reduce post-meeting press conferences. However, last week he deviated a bit from this stance and indicated “between now and year end, my predecessors and the Federal Reserve committed to press conferences this year. I’m committing to press conferences this year.” The financial markets are adjusting as they struggle to predict the Fed’s next move. Warsh wants to see the financial markets react to real economic data rather than Fed signals. He stated, “I think financial markets perform best when they react to incoming data. I think the financial markets work less efficiently when they ask a question: How will the Federal Reserve react to that incoming information?” Warsh’s stance is that explicit path guidance and heavy reaction-function signaling distort markets, reduce the usefulness of prices as information, and constrain the central bank.
The fact the financial markets are in an adjustment period is an understatement. US debt instruments have seen prices fall and rates rise. The 30Y Treasury yield hit a 19-year high and mortgage rates have also headed higher. A cautious approach to float/lock decisions is prudent considering continued mortgage interest rate volatility is likely.
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