Mortgage Rates Fall With Increased Volatility Here and in Spain

Mortgage rates fell yesterday in response to a tweet about Trump disbanding his councils of CEOs.  Twitter was in play again today.  This time around it was Gary Cohn, Trump's economic advisor.  Rather, it was rumors of Cohn's departure that sent financial markets into a tail-spin.  Terror attacks in Spain may have played a supporting role.  The net effect was heavy losses for stocks and solid gains for bonds.

Stock indexes took a dip today. The bond and mortgage markets improved. Economic data generally has been OK with Q2 earnings better than expected. Of course anytime the indexes have a nasty day we wonder if it is the start of the very long overdue correction in what no one would argue is by historical standards too high given most of the current underlying fundamentals.

The key 10yr note slipped to 2.19% the intraday day low last Friday. Since last Saturday the country has been in turmoil not seen for years. Trump’s comments and the actions in Charlottesville may possibly be the death knell for most all of Trump’s campaign promises - tax cuts, health care and infrastructure spending that the equity and bond markets had expected. Prior to the last few days, I never expected the tax cut this year but was kind of the Lone Rangers in that view, now momentum has shifted. Republicans are turning against Trump.  This afternoon Republican Senator Bob Corker (TN) lashed out against Trump joining everyone talking these days saying Trump has not shown the "stability" or competence to be "successful." Rumors circulating that Gary Cohn the White House Economic Adviser would resign, about the only one there that markets have some confidence in - but denied by the White House. Congress is on vacation otherwise there would be more turmoil.

It is two weeks now before the Jackson Hole economic symposium. Not sure what will come of it but usually going into the meeting markets stabilize and remain generally quiet. I would not doubt that the 10yr will be testing this year’s low at 2.13%/2.10% low set two months ago (June 14th).

The only data point tomorrow, the U. of Michigan mid-month consumer sentiment index. Not sure when the data was collected but after Saturday and through this week the sentiment should not be too strong. No wage improvements of consequence and now the country is splitting apart, the most unsettled since Trump won last November. Republicans not working together and Democrats smelling a turn coming in 15 months should keep Congress impotent. Time to float and let’s see where this goes.

In summary, another day of tepid action in bond markets, as Fed members cited sub-par growth and inflation concerns.  Pricing improved marginally, but stayed within recent ranges.  Sitting at these levels certainly is not bad for borrowers and lenders, but can lull both into false senses of security.  If you are happy with your pricing, and within 30 days of closing, consider locking and sleeping soundly than tossing over a minimal potential pricing improvement.