News/Blog

PPI Inflation Jumps – November 2018 Edition

While there was a wide range of economic news, it was a quiet week for mortgage rates. Reaction to the inflation data, the election results, and the Fed meeting was minimal, and mortgage rates ended the week with little change.

 

While higher inflation is negative for mortgage rates, the PPI data is very volatile month to month, so investors placed little weight on the results for October. If a similar surge is seen in the less volatile Consumer Price Index (CPI) report released next week, the reaction likely will be much larger.

 

The midterm election results were in line with the scenario anticipated by investors and had little impact on mortgage rates. With control of the House switching to the Democrats and that of the Senate retained by the Republicans, investors expect that fewer major policy changes will be accomplished going forward. If this is the case, it may result in slower increases in government spending, which would reduce the amount of bond issuance needed to fund the budget deficit.

 

As expected, Thursday’s Fed meeting produced no increase in the federal funds rate and few changes in the language in the Fed statement. Fed officials emphasized sustained improvement in the labor market, while noting that growth in business investment “has moderated” in recent months. The main point of debate about the appropriate pace of future rates hikes continues to center on whether to move quickly in response to the tightening labor market or to proceed more slowly and wait to see if it leads to a pickup in inflation.

 

Looking ahead, the Consumer Price Index (CPI) will come out on Wednesday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. Retail Sales will be released on Thursday. Since consumer spending accounts for about 70% of all economic activity in the U.S., the retail sales data is a key indicator of growth. Mortgage markets will be closed on Monday in observance of Veterans Day.

 

Weekly Change
Mortgage rates flat 0.00
Dow rose 800
NASDAQ rose 75
Calendar
Wed 11/14 CPI
Thu 11/15 Retail Sales
Fri 11/16 Industrial Prod.

Strong GDP Growth – October 2018 Edition

Weakness in the stock market was good for mortgage rates this week, while the major economic data was mixed and had little impact. As a result, mortgage rates ended the week lower.

As was the case this week, stock prices and bond prices often move in opposite directions. The simple reason is that most economic events are influential because they change the outlook for future growth and inflation. Since a stronger economy is positive for stocks and negative for bonds (and vice versa), the two asset classes react to this type of news inversely. As the outlook for global growth slowed this week, investors shifted assets from stocks to bonds, pushing yields lower, including mortgage rates.

The first reading for third quarter gross domestic product (GDP), the broadest measure of economic growth, was 3.5%, above the consensus of 3.3%. This followed even stronger growth of 4.2% during the second quarter, making these the strongest back-to-back quarters since 2014. Strength was seen in consumer and government spending, while business investment was somewhat weak.

Investors will be watching to see if the strong economic growth this year was due to transitory factors such as tax cuts and fiscal spending or whether it will be sustained in coming years. Since there are often large revisions to the initial GDP data, the relatively small outperformance versus expectations had little impact on financial markets.

There were no significant surprises from Thursday’s European Central Bank (ECB) meeting. Despite future uncertainty related to Brexit (the British exit from the European Union) and Italy’s proposed budget, the ECB made no change in interest rates and confirmed its plans to conclude its bond purchases at the end of 2018.

Looking ahead, the important monthly Employment report will be released on Friday. As usual, these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, the Core PCE price index, the inflation indicator favored by the Fed, will be released on Monday. The ISM national manufacturing index will come out on Thursday.

Weekly Change
Mortgage rates fell 0.05
Dow fell 900
NASDAQ fell 350
Calendar
Mon 10/29 Core PCE
Thu 11/1 ISM Manufacturing
Fri 11/2 Employment

 

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Stocks Fall – October 2018 Edition

The big news this week was a major selloff in the stock market, with the Dow down more than 1,000 points. Normally that would be positive for mortgage rates, but this time the impact was minor. Weaker than expected inflation data was mildly positive, and mortgage rates ended slightly lower, but remain near their highest levels in many years.

It is common to see mortgage rates fall when the stock market declines, and vice versa, but this is not always the case. It depends on the reason for the movement. Most of the time, the cause is shifting expectations for economic growth based on newly released data. Stronger growth is good for stocks, but it raises the outlook for future inflation, so it is negative for mortgage rates, and the reverse is true as well.

This week, a wider range of factors influenced financial markets, most of which were negative for stocks. However, their expected impact on mortgage rates was mixed, and the net overall effect was small. For example, tariffs generally are a drag on economic growth, but they also raise prices, which leads to higher future inflation. In addition, the supply of bonds around the world is increasing. One reason is that global central banks are reducing their holdings of bonds. Also, the U.S. budget deficit is growing due to boosted spending and tax cuts, forcing the government to issue more bonds. To summarize, higher inflation and greater supply roughly offset slower growth.

The most significant economic report released this week was Thursday’s inflation data. The Consumer Price Index (CPI), the most closely watched monthly inflation report, looks at the price change for finished goods and services. Thursday’s data revealed that inflation was lower than expected in September.

Core CPI, which excludes the volatile food and energy components, was 2.2% higher than a year ago, the same annual rate of increase as the prior month. Since lower inflation is good for mortgage rates, this weaker than expected data caused rates to decline a bit.

Looking ahead, Retail Sales will be released on Monday. Since consumer spending accounts for about 70% of all economic activity in the U.S., the retail sales data is a key indicator of growth. The minutes from the September 26 Fed meeting will come out on Wednesday. These detailed minutes provide additional insight into the debate between Fed officials about future monetary policy and have the potential to move markets. In the housing sector, Housing Starts will be released on Wednesday and Existing Home Sales on Friday.

 

Weekly Change
Mortgage rates fell 0.02
Dow fell 1,100
NASDAQ fell 300
Calendar
Mon 10/15 Retail Sales
Wed 10/17 Housing Starts
Fri 10/19 Existing Home Sales

October 2018 Edition – Strong Data

Since it raises the outlook for future inflation, the stronger than expected economic data released this week was bad news for mortgage rates, and rates reached their highest levels in many years.

The biggest surprise in the data released this week came from Wednesday’s report on the services sector of the economy. The ISM national services index surged to 61.8, well above the consensus, and the highest level ever recorded since they began to track the data in 2008. Readings above 50 indicate that the sector is expanding. In their biggest move of the week, mortgage rates rose sharply following this news.

Friday’s highly anticipated Employment report revealed that solid improvement in the labor market continued. Against a consensus forecast of 180,000, the economy gained just 134,000 jobs in September. However, upward revisions added 87,000 jobs to the results for prior months, bringing the total gains above the expected levels.

Because job gains are volatile month to month, investors also look at longer-term trends, and the economy has added an average of 211,000 workers per month so far in 2018, above even the strong pace of 182,000 seen over the same period last year.

In addition, the unemployment rate unexpectedly declined from 3.9% to 3.7%, the lowest level since 1969. Average hourly earnings, an indicator of wage growth, were 2.8% higher than a year ago, the same annual rate of increase as last month.

Looking ahead, the Consumer Price Index (CPI) will come out on Thursday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. The JOLTS report also will be released on Thursday. JOLTS measures job openings and labor turnover rates, and Fed officials value this data to help round out their view of the strength of the labor market. In addition, Treasury auctions on Wednesday and Thursday could influence mortgage rates. Mortgage markets will be closed on Monday in observance of Columbus Day.

Weekly Change
Mortgage rates rose 0.15
Dow rose 100
NASDAQ fell 200
Calendar
Wed 10/10 PPI
Thu 10/11 CPI
Thu 10/11 JOLTS

Multi-Year Highs – September 2018 Edition

A rally in the stock market drew assets away from bonds this week, which was negative for mortgage rates, while the economic data released this week caused little reaction. As a result, mortgage rates rose, reaching the highest levels in several years.

Current economic conditions provide many reasons for improving levels of home sales. These include record highs in the stock market, a solid labor market, faster wage increases, and consumer confidence at historically strong levels. For example, the most recent reading for weekly jobless claims dropped to the lowest reading since 1969. Despite all the good news, though, home sales have been disappointing this year.

After four straight months of declines, sales of previously owned (existing) homes were flat in August. The inventory of existing homes for sale also was flat from July at a 4.3-month supply, which was not particularly encouraging since a 6.0-month supply is considered a healthy balance between buyers and sellers. A small bright spot was that inventory levels were a little higher than a year ago, which marked the first year-over-year increase in about three years.

A lack of inventory has been holding back home sales, and the latest data on new construction looked great based on the headline figure. Below the surface, however, there was less reason for optimism. In August, overall housing starts rose a strong 9% from July, which was well above the expected level. Most of the increase was due to multi-family units, though, as single-family starts were up just 2% from July, and single-family building permits fell short of the consensus with a decline of 6% from July. Builders point to rising land, material, and labor costs as obstacles to a faster pace of new construction.

Looking ahead, the next Fed meeting will take place on Wednesday. Investors expect a 25 basis point increase in the federal funds rate and will be focused on comments from Fed officials. In addition, New Home Sales will be released on Wednesday. Durable Orders, an important indicator of economic activity, will come out on Thursday. The core PCE price index, the inflation indicator favored by the Fed, will be released on Friday.

Weekly Change
Mortgage rates rose 0.05
Dow rose 500
NASDAQ rose 10
Calendar
Wed 9/26 Fed Meeting
Thu 9/27 Durable Orders
Fri 9/28 Core PCE

Rates Inch Higher – September 2018 Edition

Although this week’s major U.S. economic data and European Central Bank meeting contained more good news than bad for mortgage rates overall, rates ended slightly higher.

The most recent inflation data came in at lower than expected levels. The Consumer Price Index (CPI), a widely followed monthly inflation report that looks at the price change for goods and services, was just 2.2% higher than a year, down from an annual rate of increase of 2.4% last month. Lower inflation is positive for mortgage rates, but the reaction to the data was small.

The Retail Sales report released this week was mixed. Excluding the volatile auto component, retail sales in August rose just 0.3% from July, which was below the consensus for an increase of 0.5%. However, the July results were revised higher by an amount comparable in size to the August shortfall. As a result, the data was essentially neutral for mortgage rates.

Thursday’s European Central Bank (ECB) meeting produced no significant surprises and had little impact on U.S. mortgage rates. The ECB lowered its forecast for economic growth this year and next, but confirmed its plans to wind down its massive 2.5 trillion euro bond purchase program by the end of this year. ECB officials also said that they plan to hold the benchmark interest rate at current levels at least through the summer of 2019.

Looking ahead, the housing data will be the main focus. The NAHB home builder confidence index will be released on Tuesday. Housing Starts will come out on Wednesday. Existing Home Sales will be released on Thursday.

Weekly Change
Mortgage rates rose 0.02
Dow rose 250
NASDAQ rose 125
Calendar
Tue 9/18 NAHB Housing
Wed 9/19 Housing Starts
Thu 9/20 Existing Home Sales

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Trade Negotiations – August 2018 Edition

While there was some major economic data released this week, there were no significant surprises, and its impact on mortgage rates was minor. By contrast, news on trade deals caused a negative reaction, and mortgage rates ended a little higher.

The Trump administration long ago expressed an intention to end the NAFTA trade agreement which has been in place with Canada and Mexico since the start of 1994. On Monday, it was reported that a new trade deal had been reached with Mexico. Later in the week, the administration said that progress had been made with Canada, and at the time of this writing there remained hope for an agreement by the end of the day. The uncertainty surrounding the trade situation and the potential for escalation prompted investors to shift in recent months to relatively safer assets, including U.S. mortgage-backed securities (MBS). This added demand for MBS has been positive for mortgage rates. Thus, an easing of trade tensions this week caused the reverse effect, and the reduced demand for MBS pushed mortgage rates higher.

The latest reading for the primary indicator of confidence in current and future U.S. economic conditions suggested that consumer spending may remain strong in coming months. Consumer Confidence surged far more than expected to the highest level since 2000. A strong labor market, solid economic growth, and record stock prices have contributed to a high level of optimism.

There are two major inflation reports released each month. The core consumer price index (CPI) is more closely watched by investors, while the core PCE price index is the inflation indicator favored by the Fed. Earlier this month, core CPI for July rose to the highest annual rate of increase since 2008. On Thursday, core PCE showed a continuation of a similar upward trend. In July, Core PCE, which excludes the volatile food and energy components, was 2.0% higher than a year ago, up from an annual rate of 1.9% last month. After running at lower levels for most of the past six years, core PCE has climbed to the Fed’s stated target level for inflation of 2.0%. If the upward trend continues, at some point it might cause the Fed to tighten monetary policy more quickly, but comments from Fed officials suggest that we are not particularly close to undesirably high levels.

Looking ahead, the important monthly Employment report will be released on Friday. As usual, these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, the ISM national manufacturing index will come out on Tuesday and the ISM national services index on Thursday. In addition, news on trade deals could influence mortgage rates.

Weekly Change
Mortgage rates rose 0.03
Dow rose 200
NASDAQ rose 50
Calendar
Tue 9/4 ISM Manufacturing
Thu 9/6 ISM Services
Fri 9/7 Employment

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No Surprises

While there was major economic data released this week and a Fed meeting, there were no significant surprises. Mortgage rates ended the week a little higher.

Friday’s key Employment report came in pretty much right on target across the board. Against a consensus forecast of 190,000, the economy gained 157,000 jobs in July. However, upward revisions added 59,000 jobs to the results for prior months. The economy has gained an average of 215,000 jobs per month so far this year, exceeding even the strong pace of 184,000 seen over this period last year.

The unemployment rate decreased from 4.0% to 3.9%, matching expectations. Average hourly earnings, an indicator of wage growth, also matched expectations. They were 2.7% higher than a year ago, the same annual rate of increase as last month.

As expected, the Fed made no policy changes at Wednesday’s meeting. The Fed’s statement was very similar to the prior one from the June meeting. The most notable change in the statement was that Fed officials modestly upgraded their assessment of the pace of economic growth. In particular, the statement said that economic activity “has been rising at a strong rate,” while the prior statement described it as “solid.” In addition, Fed officials noted that household spending and business investment have “grown strongly.” In June, they just said that it had “picked up.” Investors expect that the Fed will raise the federal funds for the third time this year at the next meeting on September 26.

Looking ahead, the JOLTS report, which measures job openings and labor turnover rates, will be released on Wednesday. Fed officials value this data to help round out its view of the strength of the labor market. The Consumer Price Index (CPI) will come out on Friday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. In addition, Treasury auctions on Wednesday and Thursday could influence mortgage rates.

Weekly Change
Mortgage rates rose 0.02
Dow rose 300
NASDAQ rose 150
Calendar
Wed 8/8 JOLTS
Thu 8/9 PPI
Fri 8/10 CPI

All material Copyright © Ress No. 1, LTD (DBA MBSQuotelin

Quiet Week

This week was one of the quietest of the year. The major economic data generally matched the expected levels, and mortgage rates ended nearly unchanged.

Core CPI July 2018

The most significant economic data released this week was the inflation data. The Consumer Price Index (CPI), the most closely watched monthly inflation report, looks at the price change for finished goods and services. Thursday’s release revealed that inflation has continued to rise in recent months. Core CPI, which excludes the volatile food and energy components, was 2.3% higher in June, up from an annual rate of increase of 2.2% last month. This was the highest level since January 2017.

While it had little market impact, Fed officials took careful note of the latest JOLTS report. The data revealed that there were 6.6 million open positions, but only 6.1 million unemployed people in the labor force. 36% of small businesses reported not being able to fill open positions in June, matching the record peak seen in 2000. Also, a very high level of employees willingly left their jobs, which is an indication that they are confident in their prospects for finding another job. All of these signs point to a tightening labor market.

Looking ahead, Retail Sales will be released on Monday. Consumer spending accounts for about 70% of economic activity in the U.S., and the retail sales data is a key indicator of growth. Industrial Production, another important indicator of economic growth, will come out on Tuesday. Housing Starts will be released on Wednesday.

Weekly Change
Mortgage rates flat 0.00
Dow rose 700
NASDAQ rose 300
Calendar
Mon 7/16 Retail Sales
Tue 7/17 Industrial Production
Wed 7/18 Housing Starts

All material Copyright © Ress No. 1, LTD (DBA MBSQuotelin

Housing Data

After last week’s packed economic calendar, this week there was virtually no significant news except for some housing market data. It was an extremely quiet week, and mortgage rates ended almost unchanged.

In May, sales of previously owned homes decreased slightly from April, and they were 3% lower than a year ago. The inventory of previously owned homes for sale rose 3% from April to a 4.1-month supply, but it was 6% lower than a year ago. Even with the increase, inventory levels remain very low by historical standards and are holding back sales. A 6.0-month supply is considered a healthy balance between buyers and sellers. The median home price was 5% higher than a year ago.

In an encouraging sign, home builders may be helping to address the shortage of inventory. In May, housing starts jumped a stronger than expected 5% from April, to the highest level since July 2007. Both single-family and multi-family units rose by a comparable amount. Despite rising labor and lumber costs, builders appear to be eager to supply more homes to the markets.

Looking ahead, New Home Sales will be released on Monday. Durable Orders, an important indicator of economic activity, and Pending Home Sales will come out on Wednesday. Core PCE, the inflation indicator favored by the Fed, will be released on Friday. In addition, Treasury auctions on Wednesday and Thursday could influence mortgage rates.

All material Copyright © Ress No. 1, LTD (DBA MBSQuotelin