News/Blog

Favorable ECB Meeting – March 2019 Edition

A dovish message from the European Central Bank was favorable for mortgage rates this week, while the major U.S. economic data had little net impact, and rates ended the week lower.

In recent weeks, there have been substantial downgrades to the growth forecast for Europe from a wide range of sources. With this in mind heading into Thursday’s European Central Bank (ECB) meeting, investors were anticipating that the ECB would adopt a more dovish (in favor of looser monetary policy) stance. In fact, the ECB did shift in this direction, and even more than expected. First, it extended the minimum period for which it will not raise benchmark rates by several months to the end of 2019. In addition, it will provide a fresh batch of cheap long-term loans to banks to encourage more lending and thus help boost economic activity. The ECB also sharply reduced its own forecast for GDP growth in 2019 from 1.7% to 1.1%. This news caused global bond yields, including U.S. mortgage rates, to decline.

Friday’s Employment report offered a reminder that in an economy with about 150 million jobs, what may appear to be a large miss versus the expected levels still represents just a tiny fraction of the total pool of jobs. Against a consensus forecast of 175,000, the economy added just 20,000 jobs in February. Bad weather likely was one major factor behind the shortfall, as the Construction and Leisure & Hospitality sectors were particularly weak.

The unemployment rate declined from 4.0% to 3.8%, below the consensus of 3.9%. This was mainly due to workers returning after the end of the government shutdown. Wage growth was stronger than expected in February, with average hourly earnings 3.4% higher than a year ago, up from 3.2% the prior month, and at the highest level since April 2009.

Another closely watched economic report released this week clearly beat to the upside. The services sector accounts for more than 85% of U.S. economic activity, and the ISM national services index unexpectedly jumped to 59.7, which was well above the consensus of 57.0. Readings above 50.0 indicate an expansion in the sector, and readings above 60.0 have been extremely rare since record keeping for this index began in 2008.

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 Consumer Price Index (CPI) will come out on Tuesday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. Durable Orders, an important indicator of economic activity, will be released on Wednesday. In addition, Treasury auctions on Tuesday and Wednesday could influence mortgage rates. Investors also will be watching for signs of progress in the trade talks between the U.S. and China.

The government shutdown which began on December 22 and ended on January 25 has caused delays in the release of some economic reports produced by government agencies and likely will continue to do so until the affected agencies get caught up. It is generally not known when the postponed data will be ready to be released.

Weekly Change
10yr Treasury fell 0.10
Dow fell 700
NASDAQ fell 200
Calendar
Mon 3/11 Retail Sales
Tue 3/12 CPI
Wed 3/13 Durable Orders

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

Retail Sales Dive – February 2019 Edition

Weaker than expected retail sales data was offset by progress on a government funding agreement this week, and mortgage rates ended nearly unchanged.

Consumer spending accounts for about 70% of all economic activity in the U.S., so the retail sales data is a key indicator of growth. The report for the important holiday shopping period was delayed by the government shutdown, but it finally was released on Thursday, and it was very disappointing. Since weaker growth reduces the outlook for future inflation, the data was positive news for mortgage rates.

In December, retail fells fell a massive 1.2% from November, far below the consensus for a small increase, and the largest monthly drop since September 2009. This was especially surprising since they have increased an average of about 0.4% per month since 2009. However, retail sales tend to be volatile month to month, and information from other sources such as the major credit card companies suggested that stronger spending took place around the holidays.

The most recent major inflation data came in very close to the expected levels and had little impact on mortgage rates. The Consumer Price Index (CPI) is a widely followed monthly inflation report that looks at the price change for goods and services. Investors generally prefer to look at core CPI, which excludes the volatile food and energy components, to get a better sense of the underlying trend. In January, core CPI was 2.2% higher than a year, and it has held steady close to this annual rate of increase for many months.

Uncertainty generally causes investors to shift from riskier assets such as stocks to safer ones such as bonds, including mortgage-backed securities (MBS). As a result, the recent difficulties in reaching a government funding agreement have increased the demand for MBS, which has been positive for mortgage rates. This week, however, the effect was reversed as the two parties in Congress put forth a last-minute compromise bill to avert another government shutdown, and it was signed by President Trump.

Looking ahead, it’s going to be a very light week for economic data. The minutes from the January 30 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. Durable Orders, an important indicator of economic activity, and Existing Home Sales will be released on Thursday. Mortgage markets will be closed on Monday in observance of Presidents Day.

The government shutdown which began on December 22 and ended on January 25 has caused delays in the release of some economic reports produced by government agencies and likely will continue to do so until the affected agencies get caught up. It is generally not known when the postponed data will be ready to be released.

Weekly Change

10yr Treasury

rose

0.03

Dow

rose

600

NASDAQ

rose

150

Calendar

Wed

2/20

Fed Minutes

Thu

2/21

Durable Orders

Thu

2/21

Existing Home Sales

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission.

Quiet Week February 2019 Edition

Sandwiched between recent major economic events and several more later in the month, there was little significant economic news this week, and mortgage rates ended slightly lower.

Investors were mostly focused on bigger picture economic conditions this week, and their primary questions concerned the outlook for global growth. While the forecast for U.S. gross domestic product (GDP) growth in 2019 has held relatively steady around 2.5%, many other regions have been downgraded recently, particularly in Europe. This week, the primary governing body for the European Union (EU) reduced its forecast for 2019 GDP growth in the EU from 1.9% to 1.3%. Germany was cut from 1.8% to 1.1% and the UK from 1.7% to 1.2%.

Two geopolitical issues also will remain on the radar of investors in coming weeks. First, the trade negotiations between the U.S. and China appear to be progressing very slowly. U.S. tariffs are set to be increased again on March 1 if no deal is reached, and the latest report from the Wall Street Journal says that the two sides are “far from an agreement.” Second, the British exit from the EU (Brexit) is scheduled to occur on March 31. The terms of the departure have not yet been decided, and a high level of uncertainty remains about what the effects will be after the deadline.

The most significant economic report released this week was the national services index from the Institute of Supply Management (ISM). The index declined to 56.7, slightly below the consensus of 57.0, and there was little reaction to the data. Readings above 50 indicate an expansion in the sector.

Looking ahead, the JOLTS report, which measures job openings and labor turnover rates, will be released on Tuesday. Fed officials value this data to help round out their view of the strength of the labor market. 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 is scheduled to 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.

The government shutdown which began on December 22 and ended on January 25 has caused delays in the release of some economic reports produced by government agencies and likely will continue to do so until the affected agencies get caught up. It is generally not known when the postponed data will be ready to be released.

Weekly Change
10yr Treasury
fell
0.05
Dow
fell
100
NASDAQ
fell
25
Calendar
Tue
2/12
JOLTS
Wed
2/13
CPI
Thu
2/14
Retail Sales

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission

Fed and Labor Market – February 2019 Edition

Major economic events made this a volatile week. Wednesday’s Fed meeting was strongly positive for mortgage rates, while Friday’s Employment report was modestly negative. The net result was a decline in rates for the week.

As expected, the Fed held the federal funds rate steady, but the tone of its statement was more dovish (in favor of looser monetary policy) than expected. In particular, the Fed now will be “patient” in deciding if additional rate hikes are needed. At their last meeting in December, officials clearly believed that more rate hikes would be appropriate, but on Wednesday the Fed said that “the case for raising rates has weakened.” These comments caused investors to sharply reduce their outlook for rate hikes in 2019.

Another significant change noted in the statement is that the Fed will reconsider the size of the reduction in its massive bond portfolio, suggesting that it may sell fewer Treasuries and mortgage-backed securities (MBS) than expected. A smaller supply of MBS would increase their value, which would be good for mortgage rates.

At first glance, the headline figure for Friday’s Employment report made it look like January was another blowout with job gains above 300,000 for a second consecutive month. However, nearly everything that followed in the remainder of the report brought the results back toward the anticipated levels. Throw in distortions from the government shutdown, weather effects, and revisions, and in the end, investors viewed the data as just a little stronger than expected.

Against a consensus forecast of 160,000, the economy added a massive 304,000 jobs in January. However, downward revisions subtracted 70,000 jobs from the results for prior months. Strength was seen in the leisure/hospitality and construction sectors, partly due to unusually warm weather in many regions early in the month. The unemployment rate unexpectedly increased from 3.9% to 4.0%, but this was primarily due to the effects of the government shutdown. Average hourly earnings, an indicator of wage growth, fell short of expectations with just a slight increase from December. They were 3.2% higher than a year ago, roughly the same annual rate seen over the last few months. Despite the shortfall in wage growth, the overall strength of the report raised the outlook for future inflation, which was negative for mortgage rates.

Looking ahead, it will be a light week for economic data. Of note, the ISM national services index will come out on Tuesday. In addition, Treasury auctions on Wednesday and Thursday could influence mortgage rates.

The government shutdown which began on December 22 and ended on January 25 has caused delays in the release of some economic reports produced by government agencies and likely will continue to do so until the affected agencies get caught up. It is generally not known when the impacted data will be ready to be released.

Weekly Change
10yr Treasury fell 0.07
Dow rose 400
NASDAQ rose 150
Calendar
Mon 2/4 Factory Orders
Tue 2/5 ISM Services
Wed 2/6 10yr Auction

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission.

Small Miss on Job Gains

Weaker than expected U.S. labor market data and a reduced outlook for global economic growth were favorable for mortgage rates this week, and rates ended at the lowest levels in about two months.

Friday’s key labor market report showed continued solid job gains and wage growth, but it was modestly weaker than expected. Against a consensus forecast of 190,000, the economy added 155,000 jobs in November, and the revisions to the results for prior months were minor. So far this year, average job gains have been 206,000 per month. The unemployment rate was unchanged at 3.7%.

Average hourly earnings, an indicator of wage growth, were 3.1% higher than a year ago, which was the same annual rate of increase as last month and matched the fastest pace since 2009. Since weaker economic growth reduces future inflationary pressures, the small miss in the data was good for mortgage rates.

The shortfall in the Employment report, along with a reduction in the outlook for global economic growth and growing fears of an escalation in the trade tensions with China, have caused investors to lower their expectations for the pace of tightening by the Fed in 2019. While most investors still believe that the Fed will raise the federal funds rate by another 25 basis points at the next meeting on December 19, they have significantly scaled back the anticipated number of rate hikes next year.

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 Friday. 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. Industrial Production, another important indicator of economic growth, also will come out on Friday. In addition, the next ECB meeting will take place on Thursday and could influence U.S. mortgage rates.

Weekly Change
Mortgage rates fell 0.08
Dow fell 800
NASDAQ fell 125
Calendar
Wed 12/12 CPI
Thu 12/13 ECB Meeting
Fri 12/14 Retail Sales

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission.

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

 

All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission.

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