Monday, September 25, 2017

Mortgage Rates Hold Their Own

Mortgage rates held their ground yet again, and are finally starting to look resilient after a relatively sharp move higher over the past 2 weeks.  The stock market was having a little trouble this morning, down 130 points on the DJIA and the NASDAQ was leading the way lower. The obvious news that most believe, that the key indexes are excessively overbought. Been the case for three months as the indexes continue to make new all-time highs and market bulls touting another 1000 points for the DJIA. The bond market took the baton and rallied driving the MBS prices higher. Was this the beginning of the anticipated correction?

This afternoon North Korea added some fuel accusing the US of declaring war on the isolated country. The North Korean Foreign Minister said in a statement at the United Nations that Trump’s tweets over the weekend were tantamount to a declaration of war. Of course, he did not and the White House, also of course, denied and called it “absurd”.

This morning, and in many other reports that there are that need to occur if we could expect lower interest rates - North Korea and/or a sizeable sell-off in stocks. We had both today but market reactions suggest investors took either very seriously.  We did get headlines from NK and occasional selling in stocks, maybe getting desensitized to both of the one-off barbs between Trump and NK and at current levels a few down days in the stock market is not cause to panic - yet.

The bellwether 10yr note yield generally held its low yield at 2.21%, MBS prices increased this morning and for the most part held the gains well. We think this is nothing more than a technical rebound after the rate markets increased almost daily the last 10 sessions. I have continued to state that the rate markets are due for a minor correction, however no one can predict when this will happen.

I am not expecting follow-though in the bond market tomorrow unless more selling continues in stocks. Janet Yellen will speak at 10:50 tomorrow morning in Cleveland.  More than likely this will temper opening prices in the morning.  Also, tomorrow two key data points, August new home sales and the Sept Conference Board’s consumer confidence index.

In summary, today's rabid rant from North Korea's foreign minister ("US declared war on North Korea") helped push rates lower as of early PM trading.  There is no guarantee these gains hold (or compound) without additional drama, we'll see what the rest of today brings.  Floating borrowers should definitely consider locking.

Mortgage Rates Steady - Lots of Data This Week

Mortgage rates opened unchanged this morning in the treasury and mortgage markets. There is no key data today, but this week the calendar has a number of significant data points. 

In the Senate, the Republican health care bill looks doomed: Republicans need 50 of 52 Republicans on board, but as of yesterday, they only have 49. GOP leaders going to release another version today in a last-ditch attempt to placate Senators from Maine and Alaska, Paul Ryan, KY and John McCain already in the “no” camp. Conservative Republican Senator Ted Cruz, speaking at an event in his home state of Texas, warned on Sunday that Trump and McConnell could not count on his vote. U.S. Senate Democratic leader Chuck Schumer dismissed the late effort to revise the bill and add money for a few states, calling it “just as bad for those states and the rest of the states because it still contains a massive cut to Medicaid.” 

Republicans cannot agree on almost anything.  Democrats will not support anything. But still, markets believe Congress can get a tax reform bill passed this year. Comments from politicians still keep the tax cuts dangling and markets lap it up as a done deal - hopefully, we still find it a steep hill. Democrats in campaign mode for 2018, Republicans a mixed bag of opinions and unable to rule.

This week has a number of key data points: new home sales, the final Q2 GDP data, durable goods orders, both consumer measurements and personal income and spending with the critical PCE included. North Korea still out there but not much said over the weekend. Treasury will borrow $88B in 2s, 5s and 7s. 

No change in the two factors that will impact US interest rates this week - the stock market and threats from North Korea. If interest rates have any chance to decline, it will come from either or both. Without a dynamic that pushes safe haven trades, the outlook for rates is a gradual increase.  

This week is data loaded, but stocks are not reacting much to economic data either positively or negatively. The technicals remain bearish for both MBSs and treasuries. Yellen speaks tomorrow. I am also keeping eyes on crude oil, now over $50.00 (Yellen and Draghi probably liking it as a talking point for inflation coming as Yellen has been saying since the beginning of the year.

Monday, September 18, 2017

Mortgage Rates in Limbo Heading into FOMC Meeting

Mortgage rates resumed their recent uptrend today, after taking a quick break to end the week last Friday.  The result is another push up to the highest levels in just over 3 weeks. Stocks continue to edge higher. The bond market also edging higher (rates) and the dollar keeps falling (although today the dollar indexes a little better).

The Fed, the ECB and the Bank of Japan’s best economic minds cannot get a grip on why inflation is not increasing. The consumer remains a question.  Consumer spending measured by the August retail sales declined last week, CPI still soft although there was a very minor gain in PPI compared to estimates last (0.1% more than forecast), lot of chatter about the improvement in inflation based on that miniscule improvement. Crude oil is running higher recently on hurricane issues and the na├»ve belief that OPEC and other oil producing countries will keep the faith on capping output. North Korea threatening to blow up the world, China, and Russia, at least on the surface, are not doing much to rein in NK. Mario Draghi cannot bring himself to wrap his arms around the growth in the EU, still waffling about tapering the QEs. The US housing sector lagging on not much inventory. Tax cuts on the way based on current expectations, the prime attempt to bring US companies back to the US. Media agog over the run-up in stocks fueling some increase in consumer sentiment, although the U. of Michigan consumer sentiment index released last Friday did dip lower than thought. Small businesses remain positive based on the NFIB optimism index.

A lot of issues facing the FOMC tomorrow and Wednesday, and what to do or think about them in a basket of economic mish-mash and geo-political turmoil. Trump’s UN speech tomorrow looms, his first speech to 190 countries facing his stance on America First that has shaken most that is the US moving toward isolationism. His threats directed to the little imp running North Korea, and the imp’s response to turn America into ashes. All will be in focus tomorrow. The Fed missing three governors and about to be four next month when Vice Chair Stanley Fischer will retire. Meanwhile stocks continue to climb even with more money managers sounding alarms. Can we believe the Fed, the ECB and the Bank of Japan have a handle on any of this? Whether we believe, it is very likely markets will come away from Wednesday’s policy statement with increased optimism. The Fed is not in business to forecast bad news.

Tomorrow two key data points with August housing starts and permits, along with August import and export prices.

I am not looking for much movement in the bond and mortgage markets tomorrow.  The stock indexes continue to hold the key for bonds that are only going to move lower on a turn-around in equity markets or safety moves due to geo-political events. With the Fed and Janet Yellen Wednesday it is reasonable to think a quiet day unless Trumps says things that shock, but we doubt he will.  

In summary, rates continued their upward march today, and it is now safe to say the trend is not our friend.  The good news is that rates' ascent has been (for the moment) been orderly and moderate.  I favor locking all loans within 30 days of closing, as I do not see a lot of potential for short term gains here. 

Saturday, September 16, 2017

Mortgage Rates Level Off - Waits for Next Week FOMC Meeting

Mortgage rates were steady, confirming the end of a somewhat abrupt correction from last week's 2017 lows.  In other words, rates rose quickly during the first days of the week and spent the last 3 days leveling off. 

This week we saw stocks up and interest rates up. No reaction to the North Korea launch yesterday, no reaction to the very soft retails in August. No reaction to the terrorist bomb in London. The best most economists are saying is that markets are no longer fearing the US will do anything militarily no matter the NK antagonism - basically relying on diplomatic measures. A majority of Americans support military action against North Korea if economic and diplomatic efforts fail, according to a Gallup poll released today amid rising tension over Pyongyang’s nuclear weapons program and recent missile launches. The survey of 1,022 U.S. adults last week found that 58% said they would favor military action.

Some comments today that inflation was a big deal this week - PPI was stronger, CPI yesterday also fractionally higher. Something to think about but I do not see those two increases as any reason to reverse thinking that inflation is still moribund. At the end of the month August personal income and spending data along with the Fed’s favorite inflation reading, the PCE. The hurricanes have taken a toll on inflation - higher costs for building materials and home furnishings, increases costs of gasoline and crude oil. Symptoms but so far not a trend. Much of the coming economic data will be influenced by the hurricanes.

Next week the key event is the FOMC meeting on Tuesday and Wednesday and Janet Yellen’s press conference Wednesday afternoon. On Monday, the Sept NAHB housing market index. Tuesday August housing starts and permits, August import and export prices. Wednesday August existing home sales, beside the FOMC the Fed will release its forecasts on growth and inflation. Thursday Sept Philly Fed business index, August leading economic indicators, weekly jobless claims.  

The flat momentum at the end of this week is not too likely to stick around next week.  The Fed will (probably) make a landmark announcement that confirms the start of its balance sheet reduction efforts.  This means slightly less bond-buying each month, and could put upward pressure on rates.  Financial markets are widely expecting that, however, and the Fed has already fully mapped out its game-plan for the program.  So, the bigger impact to rates would come from any updates to the Fed's forecasts or the verbiage in the policy statement.

In summary, with the most recent major development for mortgage rates being a bounce at the lowest levels of the year, it makes more sense to stay on guard against upward pressure until and unless we see renewed momentum toward lower rates.

Friday, September 15, 2017

Mortgage Rates Not Moving Even With Weak Data

Mortgage rates are moving sideways todays with no real push one way or another.  Retail sales this morning took a big dip, as it was supposed to be a positive number but came in with a negative number.  A huge miss, but according to the initial chatter from economic bulls, it was due to Harvey. That, of course, does not explain the significant revision lower in July sales. The reaction did not move MBS prices higher or a decline in the bellwether 10yr, both generally unchanged from yesterday. With the FOMC meeting next Tuesday, investors and traders are more focused on it than weak data. The optimistic view is that September retail sales will be substantially better. Meanwhile, Amazon also had very weak sales in August.

The September NY Fed Empire State manufacturing index did come in better than anticipated.  A bit later, we got the August industrial production number, again, thought to be positive, was negative. July business inventories was the only number that came in line.

Yesterday it hit the wires that North Korea launched another missile over Japan. As recently as last week, that would have driven safety trades - but nothing happened in the bond, gold or currency markets. The world seems to have come to rest with NK potential threats. Yesterday Kim Jong-un and his Peace Committee (oxymoron) threatened Japan with annihilation. His Asia-Pacific Peace Committee saying, “Japan is no longer needed to exist near us.”

A homemade bomb exploded on a packed rush-hour commuter train in London, injuring 22 people on Friday, police said, in what was being treated as the fifth terrorist attack in Britain this year. 22 people were taken to London hospitals. None were thought to be in a serious condition.

Tax cuts timetable is September 25th when the “plan” will be released. Meanwhile, Dems are sounding caution, which is not surprising. Senate Finance Committee will not sit still for the plan drawn by Republicans and the Trump administration. Everyone wants tax cuts. Getting there is like trying to climb El Capitan with one hand.

The 10yr testing its 100-day average this morning after an intraday run to 2.23% yesterday morning. Most of the news this morning should be bearish for stocks and positive for interest rates, but that is not happening. Do not fight the tape. Weak retail sales, weak industrial production, NK launching another missile, soft consumer sentiment - none has had any noticeable impact on markets.

With the weak retail sales numbers and the geopolitical events noted above, I do not expect mortgage rates to move out of this relatively tight channel.

Mortgage Rates Flat

Mortgage rates tried to move higher today, but there was a slight resilience in underlying bond markets.

Tax cut hearings began in the Senate Finance Committee today. Nothing but the usual barbs between Republicans and Democrats, but at least it is a beginning. Republicans ramping up the rhetoric, no tax cuts for the wealthy but Dems say there are large tax loop holes that do favor the rich. In the House today they passed a $1.2 trillion bill to fund most government activities in the fiscal year beginning Oct. 1, knowing the Senate will disagree with many controversial elements and force a negotiation that could stretch into December. More politics in action.  

The funding bill passed on largely party lines getting one Democrat vote (211-198). By the time the tax cut bill gets to the White House it will not look anything like the bill today. Democrats warned that the bill, which bundled together 12 separate funding measures would need substantial revision in the Senate, where Republicans hold 52 of 100 seats but most legislation requires 60 votes for passage.

Oil experts are now venturing that demand for oil will continue to increase and with OPEC and Non-OPEC producers expected to continue with their cuts well in and past the March deadline prices will increase. Today WTI oil momentarily breached $50.00 the pivot that draws attention. If that outlook materializes it would be another reason for the Fed to ponder a rate hike in December.

Tomorrow some key data reports will be forthcoming and could set the tone for the weekend.  Right now, proceed with caution if you are still floating.

In summary, bond markets were open today, but it was tough to tell as prices were virtually flat.  This morning's "warm" inflation data failed to motivate sellers to the extent it typically would have.  Glad the losses have slowed, but not sure we are poised for gains either.  Floating is a 50/50 call here, depends on how well you like to roll dice.  

Thursday, September 14, 2017

Mortgage Rates Not Moving Despite Good Data - North Korea Again in the Picture

Rate markets opened unchanged early this morning and have been basically even towards mid-day.  At 11:00AM, the 10yr is at 2.20% and MBSs are flat. 

Weekly jobless claims were expected to come in higher than last week, especially in Light of the two hurricanes in Texas and Florida and throughout the Southeast.  There was no reaction as claims are going to be volatile with Irma and Harvey still having an impact on jobs. Most of the possible increases in claims are going to be temporary while the hit regions rebuild and return to normal, but that will not happen overnight.

August CPI was also expecting an increase, and came in a tad better. Inflation based on yesterday’s PPI and this morning’s CPI is still not showing the growth in inflation that central banks want to see. An increase in the cost of gasoline and rental rates, signs of firming inflation that could allow further monetary policy tightening from the Federal Reserve this year. As I noted yesterday, the Fed’s favorite inflation data is the personal consumption expenditures released with the monthly income, and spending reports each month (this month on the 29th).

The Bank of England saying today that it could raise interest rates for the first time in a decade in the coming months. The Bank left rates unchanged at 0.25% but warned that if the economy continued to improve a rate hike may be in the cards--if inflation increases. So far global inflation remains a conundrum for all central banks. Not increasing while economies improve and more people back to work.

North Korea is at it again with huge threats. Kim Jong-un now is threatening Japan with annihilation. His Asia-Pacific Peace Committee is saying, “Japan is no longer needed to exist near us.” The US was the “chief culprit” for the sanctions, which amounted to “state terrorism”, the Peace Committee said, adding: “Now is the time to annihilate the US imperialist aggressors.” The Peace Committee went on saying NK would reduce the United States to “ashes and darkness” for supporting a U.N. Security Council resolution and sanctions over its latest nuclear test. Peace Committee? Based on market reactions he did not get the response he was looking for. No safety trades in bonds or gold.

We are now seeing models turn bearish for interest rates when the 10yr tested 2.23% early this morning, the last vestige of technical bullishness went up in smoke. That said, it is still all about the stock market and potential fears resurrecting over North Korea. Next week, the FOMC meeting and Janet Yellen’s press conference. Approaching an FOMC meeting always brings out thoughts of another rate increase. Fed officials have their gags on this week and before the meeting next Tuesday and Wednesday.

The economic data denoted above was positive and could push mortgage rates higher. However, North Korea threatening Japan with annulation is helping to keep a lid on mortgage rates. The biggest factor today for mortgage rate volatility is North Korea.