News/Blog

Steady Fed Policy – January 2020 Edition

While there was a wide range of important economic news this week, there were no significant surprises. The major economic growth and inflation data came in right on target, and Wednesday’s Fed meeting was in line with expectations. Since it’s still too early to judge the extent of the effects of the coronavirus, a small shift to safer assets helped mortgage rates end near the lowest levels since 2016.

Investors were closely watching the news about the spread of the dangerous new coronavirus this week. For mortgage rates, the main question is how much global economic growth will slow due to decreased travel and other activities. There still is far too much uncertainty to forecast the outcome with a high degree of accuracy, however, so investors generally have continued to reduce the level of risk in their portfolios.

Gross domestic product (GDP), the broadest measure of economic activity, increased 2.1% during the fourth quarter, which was the same growth rate as the third quarter. Early estimates for the first quarter of this year are a little lower, partly due to an expected slowdown from the coronavirus.

The PCE price index, the inflation indicator favored by the Fed, revealed that core inflation was 1.6% higher than a year ago, which was the same annual rate of increase as last month.

As widely expected, the Fed held the federal funds rate steady and its statement released after the meeting was very similar to the prior one. In short, the message still is that Fed policy is unlikely to change any time soon, barring any major new developments to shift the economic outlook. When asked about the coronavirus, Fed Chair Powell reassured investors that officials are closely monitoring the situation but that it is too soon to forecast its ultimate economic impact.

Looking ahead, the monthly Employment report will be released on Friday, and 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 be released on Monday. The ISM national services index also will come out on Friday. In addition, news about the coronavirus, the US elections, or the trade negotiations with China could have an influence.

Weekly Change
10yr Treasury fell 0.15
Dow fell 500
NASDAQ fell 100
Calendar
Mon 2/3 ISM Manufacturing
Fri 2/7 Employment
Fri 2/7 ISM Services

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Focus on New Virus – January 2020 Edition

The primary influence on mortgage rates this week came from a very unexpected source. Concerns about a new virus spreading in China had a positive impact on rates, while the reaction to the economic data was small. As a result, rates ended the week a little lower.

Last weekend, news stories emerged about the spread of the dangerous new coronavirus in China. As the number of reported cases increased, investors grew more concerned that global economic growth could slow due to decreased travel and export activity in the region. Since slower growth reduces future inflationary pressures, this was positive for mortgage rates.

The most significant economic data released this week came from the housing sector, and lower mortgage rates have helped boost sales activity. In December, sales of previously owned (existing) homes increased more than expected from November and were 11% higher than a year ago. National median existing-home prices were up 8% from a year ago.

A lack of inventory remained a headwind in many regions, as the number of homes for sale fell to just a 3.0-month supply nationally, well below the 6.0-month supply which is considered a healthy balance between buyers and sellers. Inventory is now at the lowest levels since tracking began in 1982.

Thursday’s European Central Bank (ECB) meeting was in line with investor expectations and had little impact on US mortgage rates. As expected, European benchmark rates were held steady. The ECB announced that it will launch the first strategic review of its policy objectives and tools since 2003.

Looking ahead, New Home Sales will be released on Monday. The next Fed meeting will take place on Wednesday. Investors expect that there will be little change in the Fed’s guidance about future policy, but any surprises could affect mortgage rates. First-quarter gross domestic product (GDP), the broadest measure 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. In addition, news about the coronavirus, the US elections, or the trade negotiations with China could have an influence.

Weekly Change
10yr Treasury fell 0.10
Dow fell 200
NASDAQ rose 25
Calendar
Mon 1/27 New Home Sales
Wed 1/29 Fed Meeting
Thu 1/30 GDP

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Manufacturing Weakens – January 2020 Edition

After dropping more than a full point from the end of October in 2018 to the end of October in 2019, mortgage rates barely changed during November and December. Several factors have affected rates over the past year, including economic data, Fed policy, and the trade negotiations with China.

Overall, recent economic data has suggested that growth in 2020 will continue at a moderate pace, despite some weakness in the manufacturing sector. It has been repeatedly emphasized by Fed officials that Fed policy likely is on hold for a while and that it would take a significant change in economic conditions to adjust the federal funds rate. On the trade front, the US and China have reached a limited “phase one” agreement and appear to have begun the lengthy negotiations over the more difficult issues which remain.

The first significant economic report released this year was a bit disappointing, as the ISM national manufacturing index unexpectedly fell to 47.2, the lowest level since June 2009. Readings below 50 signal a contraction of the sector, and this was the fifth straight month below that level. However, the manufacturing sector has been suffering due to the elevated tariffs and other restrictions resulting from the trade dispute with China, and most investors do not feel that its weakness signals much about the strength of the overall economy.

The biggest surprise for investors in a while was an unexpected increase in tensions with Iran. On Friday, the US launched a drone strike which killed a top Iranian military commander. As usual, investors responded by shifting to relatively safer assets such as bonds while they watch to see if the situation will escalate.

Looking ahead, the monthly Employment report will be released on Friday, and 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 services index and Factory Orders will come out on Tuesday. In addition, news about Iran or the trade negotiations with China could have an influence.

Weekly Change
10yr Treasury fell 0.05
Dow fell 50
NASDAQ rose 25
Calendar
Tue 1/7 ISM Services
Tue 1/7 Factory Orders
Fri 1/10 Employment

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

Trade Talks Face Hurdles – November 2019 Edition

The trade negotiations with China were the main influence on mortgage rates again this week, but this time they had a favorable impact. The major economic data came in close to the expected levels and caused little reaction. As a result, rates ended the week lower.

Last week, it seemed like the U.S. and China were close to signing a limited “phase one” trade agreement, which reportedly would contain some of the easier concessions for each side to make. This week, however, both sides appear to be dragging their feet over the precise terms of the deal. In particular, China is hesitant to commit to specific levels of U.S. agricultural purchases, while the U.S. seeks better protection of intellectual property. Since tariffs and other restrictions imposed in the trade war have slowed global economic activity, this week’s lack of progress in reaching a deal was positive for mortgage rates.

Friday’s report on retail sales revealed that consumer spending has rebounded from a brief slowdown last month heading into the important holiday shopping season. In October, retail sales rose a solid 0.3% from September, which was slightly stronger than expected and were 3.1% higher than a year ago. The shift in favor of internet shopping continued as online spending showed large gains, while purchases at department stores declined.

The other major economic report released this week indicated that core inflation eased slightly from last month, as expected. In October core CPI was 2.3% higher than a year, down from an annual rate of increase of 2.4% in September.

In testimony to Congress this week, Chair Powell didn’t change the Fed’s recent message that monetary policy likely is on hold for a while. Powell said that there will be no further rate adjustments if the economy performs as expected with modest growth and inflation near the Fed’s target level.

Looking ahead, Housing Starts will be released on Tuesday. The minutes from the October 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. Existing Home Sales will be released on Thursday. In addition, news about the trade negotiations with China could have an influence.

Weekly Change
10yr Treasury fell 0.10
Dow rose 200
NASDAQ rose 50
Calendar
Tue 11/19 Housing Starts
Wed 11/20 Fed Minutes
Thu 11/21 Existing Home Sales

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

Increased Optimism on Trade – November 2019 Edition

The trade negotiations with China dominated the economic news this week. Unexpected signs of progress in reaching a deal were unfavorable for mortgage rates. Stronger than expected economic data also was negative, and rates climbed to the highest levels since late July.

On Thursday, a Chinese trade official said that both sides have agreed to simultaneously remove some existing tariffs. This caused investors to grow more optimistic that a limited “phase one” trade agreement will be signed. The phase one deal reportedly contains some of the easier concessions for each side to make. More difficult issues such as the protection of intellectual property will be addressed in future discussions. Even the phase one deal is not a sure thing, however, as later reports indicated that some U.S. officials are opposed to any tariff reductions until an agreement has been reached in a wider range of areas.

The tariffs and other restrictions imposed this year in the trade war have slowed global economic activity. This has reduced the outlook for future inflation, which has been positive for bonds. As a result, this week’s news which indicated progress in reaching a trade deal was unfavorable for bonds, including mortgage-backed securities (MBS), causing mortgage rates to rise.

The most significant economic report released this week was the survey of the services sector from the Institute of Supply Management, and its strength also was negative for mortgage rates. After falling to the lowest level in over three years last month, the ISM national services index rose more than expected to 54.7. The services sector accounts for over two-thirds of U.S. economic activity, and readings above 50 signal an expansion.

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. In addition, speeches by Fed officials or news about the trade negotiations with China could have an influence. Mortgage markets will be closed on Monday in observance of Veterans Day.

Weekly Change
10yr Treasury rose 0.20
Dow rose 300
NASDAQ rose 75
Calendar
Wed 11/13 CPI
Fri 11/15 Retail Sales
Fri 11/15 Industrial Prod.

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

Home Sales Slip – October 2019 Edition

A light batch of economic data caused little reaction this week, and Thursday’s European Central Bank meeting also had just a minor impact. As a result, mortgage rates ended the week nearly unchanged.

The most significant economic data released this week came from the housing sector. In September, sales of previously owned (existing) homes, which make up about 90% of the market, fell a little more than expected from August but still were 4% higher than a year ago. National median existing-home prices were up 6% from a year ago. Inventory levels remained the primary trouble spot, as the number of homes for sale was at just a 4.1-month supply nationally, well below the 6.0-month supply which is considered a healthy balance between buyers and sellers.

September new home sales, which account for the remaining 10% of the market, also fell a bit from August. Unlike existing home sales, which are based on actual closings, new home sales measure contracts signed during the month. The decline suggests that new home sales in September were more heavily affected by an increase in mortgage rates, which were almost 0.5% higher at their peak than at the beginning of the month. Despite the recent weakness, new home sales still were 16% higher than a year ago.

This week, investors were watching a couple of events in Europe as well, but neither had much effect on U.S. mortgage rates. As expected, the European Central Bank (ECB) kept benchmark rates unchanged at its meeting on Thursday, and comments from ECB President Draghi provided little reason for investors to alter their outlook for future policy. The latest proposed plan for the British exit from the European Union (Brexit) was rejected by the British Parliament over the weekend, and there is not enough time to attempt to reach a new deal before the scheduled departure date of October 31. British and EU officials now are negotiating another extension to the deadline.

Looking ahead, it will be a busy week. The next Fed meeting will take place on Wednesday, and investors expect a 25 basis point rate cut. The monthly Employment report will be released on Friday, and 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, third quarter GDP, the broadest measure of economic growth, will come out on Wednesday. The core PCE price index, the inflation indicator favored by the Fed, will be released on Thursday. In addition, news about Brexit, the impeachment inquiry, or the trade negotiations could influence mortgage rates.

Weekly Change
10yr Treasury rose 0.01
Dow rose 150
NASDAQ rose 100
Calendar
Wed 10/30 Fed Meeting
Wed 10/30 GDP
Fri 11/2 Employment

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

Potential Trade Deal – October 2019 Edition

Increased optimism about a trade deal was negative for mortgage rates this week. The economic data and the news from the Fed had little impact, and mortgage rates ended the week higher.

The trade talks between the U.S. and China resumed on Thursday, and comments from officials have suggested that the two sides are close to reaching a limited agreement. Reports hinted that a deal might include increased agricultural purchases, curbs on currency manipulation, and delays in the implementation of new tariffs. Tougher issues such as the protection of intellectual property would be addressed in future talks. A key meeting between President Trump and Chinese Vice Premier Liu He is scheduled to take place on Friday afternoon.

The tariffs and other restrictions imposed this year in the trade war have slowed global economic activity. This has reduced the outlook for future inflation, which has been positive for bonds. As a result, the possibility of a trade deal was unfavorable for bonds, including mortgage-backed securities (MBS), causing mortgage rates to rise.

The latest data released this week revealed that core inflation held steady. The Consumer Price Index (CPI) is a widely followed monthly inflation report that looks at the price change for goods and services. In September, Core CPI, which excludes the volatile food and energy components, was 2.4% higher than a year ago, the same annual rate of increase as last month.

This week’s comments from the Fed contained no significant new information. On Tuesday, Fed Chair Powell again explained that the Fed will allow its balance sheet to grow roughly in line with the size of the economy to provide adequate liquidity for the needs of financial institutions. The minutes from the September 17 Fed meeting released on Wednesday confirmed that officials remained divided about the appropriate path for future monetary, primarily due to uncertainty about the impact of increased trade restrictions on the economic outlook.

Looking ahead, Retail Sales will be released on Wednesday. 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. Housing Starts will come out on Thursday. In addition, news about the trade negotiations could influence mortgage rates. Mortgage markets will be closed on Monday in observance of Columbus Day.

Weekly Change
10yr Treasury rose 0.20
Dow rose 300
NASDAQ rose 100
Calendar
Wed 10/16 Retail Sales
Thu 10/17 Housing Starts
Thu 10/17 Industrial Prod.

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

Economy Slows – October 2019 Edition

The major economic data released this week was mostly weaker than expected, which reduced the outlook for future inflation. This was positive for mortgage rates, and they ended the week lower.

As expected, Friday’s key monthly Employment report was consistent with a slower pace of job creation from the very strong levels seen over the last couple of years. Against a consensus forecast of 145,000, the economy gained 136,000 jobs in September, and upward revisions added another 45,000 to the results for prior months. The unemployment rate, which is calculated based on surveys of workers, unexpectedly declined from 3.7% to 3.5%, which was the lowest level since 1969.

The other major component of the labor market report contained much less encouraging news, however. Average hourly earnings, an indicator of wage growth, were flat from August, far below the consensus for a substantial gain. They were 2.9% higher than a year ago, down from an annual rate of increase of 3.2% last month.

In addition to the disappointing wage data, two closely watched reports from the Institute of Supply Management (ISM) released this week revealed weaker than expected economic growth. The ISM national services index, which covers the bulk of U.S. economic activity, showed a sharp drop to 52.6, which was the lowest level since August 2016. The ISM national manufacturing index declined to just 47.8, which was the worst reading since June 2009.

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 their view of the strength of the labor market. The minutes from the September 17 Fed meeting also 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. The Consumer Price Index (CPI) will be released on Thursday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. In addition, news about the impeachment inquiry or the trade negotiations could influence mortgage rates.

Weekly Change
10yr Treasury fell 0.15
Dow fell 500
NASDAQ fell 50
Calendar
Wed 10/9 Fed Minutes
Wed 10/9 JOLTS
Thu 10/10 CPI

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

Fed Eases – September 2019 Edition

Wednesday’s Fed meeting overshadowed the other economic news this week, but it provided no surprises and had little net effect. Stronger than expected housing data also had just a minor impact, and mortgage rates ended the week a little lower.

The Fed cut the federal funds rate by 25 basis points, as expected, and its statement contained few changes from the prior one. The main takeaway from the meeting was that Fed officials remained divided about the outlook for the economy and appropriate monetary policy. While seven out of ten officials voted in favor of the cut, two preferred no change, and one supported a larger 50 basis point reduction. According to Fed Chair Powell, a number of potential risks have made the forecast for U.S. growth more uncertain. Most notably, global growth has been weakening, and trade tensions have been slowing manufacturing activity. Overall, the meeting provided little new information to cause investors to alter their outlook for future Fed policy.

This week’s news from the housing sector was encouraging. In August, sales of existing homes increased more than expected from July to the strongest level since March 2018 and were modestly higher than a year ago. The national median existing-home price was up 5% from a year ago. The main trouble spot again was a lack of homes for sale in many regions. Inventory levels nationally were at just a 4.1-month supply and were 3% lower than a year ago.

Additional supply may be on the way, however. In August, housing starts jumped 12% from July to the strongest level since June 2007, with improvement in both the single-family and multi-family segments. Starts were 7% higher than a year ago. Similarly, building permits, a leading indicator of future construction, rose 8% from July to the best level since May 2007.

Looking ahead, New Home Sales will come out on Wednesday and Pending Home Sales on Thursday. The core PCE price index, the inflation indicator favored by the Fed, and Durable Orders will be released on Friday. In addition, news about the trade negotiations could influence mortgage rates.

Weekly Change
10yr Treasury fell 0.10
Dow fell50
NASDAQ rose25
Calendar
Wed 9/25 New Home Sales
Fri 9/27 Core PCE
Fri 9/27 Durable Orders

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

Mixed Data – September 2019 Edition

There was little change in mortgage rates this week, as investors looked ahead to major central bank meetings later in the month. The economic data released this week contained mixed results, and its net effect was small.

A small miss in job gains in Friday’s key Employment report was offset by wage gains which modestly surpassed expectations. Against a consensus forecast of 150,000, the economy added just 130,000 jobs in August. In addition, downward revisions subtracted 20,000 jobs from the results for prior months. The Unemployment Rate remained at 3.7%, as expected. Average hourly earnings, an indicator of wage growth, rose 0.4% from July, above the consensus of 0.3%.

Earlier in the week, the major data again reflected solid performance in most of the economy, with the glaring exception of the manufacturing sector. The ISM national services index posted much larger than expected gains to 56.4, but the ISM national manufacturing index missed to the downside with a decline to 49.1. Readings above 50 indicate an expansion, while readings below 50 indicate a contraction. Global manufacturing activity has been slowed in recent months by increased trade barriers such as tariffs.

On the trade front, the latest news about the negotiations between the U.S. and China indicated a willingness on both sides to continue to work toward a mutually beneficial deal. On Thursday, officials announced that the next round of trade talks will take place early in October.

Looking ahead, the next European Central Bank (ECB) meeting will take place on Thursday. In the U.S., 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. 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. The next U.S. Fed meeting will take place on September 18. In addition, news about the trade negotiations could influence mortgage rates.

Weekly Change
10yr Treasury rose 0.05
Dow rose 400
NASDAQ rose 75
Calendar
Thu 9/12 CPI
Thu 9/12 ECB Meeting
Fri 9/13 Retail Sales

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