Mortgage Rates See Little Movement

Another day with little movement in the bond and mortgage markets after the improvement this morning on the very weak NY Empire State manufacturing index. The stock market though showed its usual volatility, opening down 128 points on the DJIA, two hours later the loss was gone and equity market indexes closed the day fractionally higher on the release of the NAHB index at 9:00 am. The Empire index in July was very weak. Is it meaningful to the overall economic outlook? We do not believe so at the moment. On Thursday the more inclusive Philadelphia Fed business index that covers most all of the northeast will be released, it is expected also to be weak as well.

Builders apparently believe the housing outlook remains positive, the August NAHB housing market index came is as expected. Not quite sure where the optimism is coming from as the overall housing market is still at best sub-par in comparison to pre 2008. Tomorrow morning July housing starts and permits early as the date will include both single family and multi-family numbers. Young people are not buying and rents are on the increase limiting the ability to save for a down payment. NAHB saying apartment construction not keeping up with demand.

The only data tomorrow is the July housing starts and permits. Markets looking forward to Wednesday when the minutes of the July 29th meeting are released.

The bond and mortgage markets held up well with the stock market improving today, that is until about 2:30 when MBS prices and the 10yr note rate moved. The rate markets sat quiet until late this afternoon. The 10yr declined to 2.15% from 2.19% on Friday but lost all momentum as the 10yr came close to its solid resistance at 2.14%. I do not expect much tomorrow as long as starts and permits are generally in line with estimates for single family starts and permits. We have lost a lot of the bullish momentum in the last week after the stock indexes were hammered last Tuesday. Still hanging on to slight bullish technicals but I see this now as a neutral outlook. The Fed is closing in on Sept 17th FOMC meeting, trading is very thin as is usual this time of the year. How markets digest the FOMC minutes on Wednesday is critical, will there be anything in the minutes that tilts the table on a Sept rate increase? I continue to believe the Fed will not move in September (or at any time this year), the surveys out there are about 50/50.

In summary, bonds rallied today on a dismal Empire State manufacturing report, staying within a small range all day. It is always a plus when bond prices do not fluctuate, as secondary desks like predictability, and can price loans lower when markets are stable. We are (once again) approaching resistance for both treasuries and MBS. The question is whether we hit it and bounce to higher rates, or break through. Those locking today can rest assured they're getting some of the best pricing in a month. Those floating need to clearly define what their risk tolerance is, in case rates do bounce back up.