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Market
Comment
Mortgage bond prices finished the week lower, which put upward pressure on rates. Trading seesawed up and down throughout the week. Rates improved Monday, worsened Tuesday, rallied Wednesday, worsened again Thursday, improved sharply early Friday morning and shot higher late Friday morning. The moves were beyond the normal small range bound volatility that is normal. We saw half a discount point swings several times during the week. High oil prices and inflationary fears tied to the U.S. conflict with Iran continued. The data was mixed. FHFA house price index rose 0.3% vs 0.1%. Consumer confidence was 81.9 vs 89.2. ADP employment was 90K vs 70K. GDP rose 2.2% vs 1.5%. Income rose 0.2% vs 0.4%. Spending rose 0.9% vs 0.8%. Core PCE Prices rose 0.2% vs 0.3%. Weekly jobless claims were 197K vs 200K. ISM Index was 54.5 vs 55. Unemployment was 4.2% vs 4.1%. Payrolls rose 29K vs 90K. Mortgage interest rates finished the week worse by 3/8 of a discount point.
LOOKING
AHEAD
|
Economic
Indicator |
Release
Date &
Time |
Consensus
Estimate |
Analysis
|
| Weekly ADP Employment |
Tuesday, Oct. 6,
8:30 am, et
|
20K
|
Important. An indication of employment. Weakness may bring lower rates.
|
| Trade Data |
Tuesday, Oct. 6,
8:30 am, et
|
$89.8B deficit
|
Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
s
|
| Fed Minutes |
Wednesday, Oct. 7,
2:00 pm, et
|
None
|
Important. Details of the last Fed meeting will be thoroughly analyzed.
|
| Consumer Credit |
Wednesday, Oct. 7,
3:00 pm, et
|
$15.2B
|
Low importance. A significantly large increase may lead to lower mortgage interest rates.
|
| Weekly Jobless Claims |
Thursday, Oct. 8,
8:30 am, et
|
195K
|
Important. An indication of employment. Higher claims may result in lower rates.
|
| U of Michigan Consumer Sentiment |
Friday, Oct. 9,
10:00 am, et
|
48.1
|
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
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Caution
Inflation is typically the most important focus for the mortgage interest rate market. A lot of increases in interest rates also come following stronger stocks. As stocks struggle, we often see rates improve. In addition, mortgage bonds often benefit from global economic uncertainty as investors search for safe havens amid economic concerns in the euro zone and elsewhere. This flight to quality buying of mortgage bonds helps push prices higher and mortgage interest rates lower.
The level of interest rates reflects the balance between the supply of money from investors and the demand for money by borrowers. Rising inflationary expectations and uncertainty about the performance of the bonds cause investors to require higher rates of return on investments. This compensates for the erosion of the principal that eventually is returned to them or the risk of non-performance. Regardless of inflation levels, rising economic activity can increase the demand for investors’ funds, and thereby lead to higher interest rates. Investors pulling money out of bonds and into stocks could pressure mortgage rates. The demand for money diminishes as the economy struggles. The Fed raises interest rates to buffer demand from businesses and consumers. The Fed keeps rates higher to rebalance supply and demand pressures to help inflation fall to more manageable levels. Data showing the rate hike worked will eventually push the Fed to pivot their high rate policy. Until then, a cautious approach to float/lock decisions is prudent.
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