Mortgage Rates Movement is a Little Better

A little better in the bond and mortgage markets early today, but not much. Stock indexes at the beginning of the day continued their relentless drive higher, but have calmed down as of 11:00AM. Currently we have the 10yr at 2.26% and MBS pricing in positive territory. 

Initial Weekly Jobless Claims came in lower than market estimates. The more closely watched 4-week moving average fell from 246,000 down to 243,750 keeping a very low trend line intact. The July Philly Fed Business Conditions Outlook Survey declined more than anticipated.  There was no initial reaction to the soft Philly Fed that in the past was a data point that got more attention. The last data point this morning was June leading economic indicators, not generally a market mover, which had its best monthly gain since December, 2014.

The bigger news was that the Bank of Japan concluded its 2-day meeting with increased concerns that inflation is going lower and not higher as the bank, like our Fed and the ECB, continue to fret about. Central bankers do not have a clue why inflation is not moving toward the 2% global inflation target and expectations. ): The Bank of Japan kept their key interest rate unchanged at -0.1%. They kept their inflation target the same but pushed back their ability to hit 2% CPI until 2019. They raised their growth outlook (which is an improvement but still pretty anemic).

The ECB also met today and left their key interest rate unchanged at 0.0%. He said that risks to growth are broadly balanced and that inflation is not picking up yet and expects to remain near current levels for the next several months. As far as the bond program, he said that they are not discussing a "taper" and that they bond program will continue as planned until December. But they stand ready to decrease or increase their bond purchases as needed if the economy turns either way.

Next week, the Fed will meet for two days.  There will be no change in interest rates expected but most of us believe that there will be more specifics about the Fed’s plans to begin to taper its balance sheet, now at $4.5 trillion, that ballooned from $800B in 2008 buying bonds and MBSs to fend off economic declines and higher interest rates. The current thinking in markets is that the Fed will likely increase the Federal Funds rate in December - but do not take that too seriously - there is a lot of water to go over the dam before December.

The dollar continues its decline this morning; the dollar index -0.11 from yesterday. Dollar/euro lower, dollar/yen generally unchanged. The continual dollar selling isn’t helping the bond market, lessening demand from foreign investors. Investing in dollars with foreign currencies is currently a loser, as the value of US investments declines against foreign currencies.

This could have been a fairly volatile day for mortgage rates with the BoJ and ECB meeting, as noted above.  As it turns out, nothing really came of it and now we expect mortgage rates to remain flat throughout the day.