Mortgage Rates in Same Trending Pattern

Mortgage rates are trending sideways this morning, which again puts us in the same direction as we have been for the past several weeks. Currently, we are not seeing much volatility in the mortgage markets, even though there have been moments that could have sent it one way or another, such as the speeches that were given at Jackson Hole last Friday.

We have a very robust domestic economic calendar which will see revisions to the 2nd QTR GDP and some important manufacturing data with Chicago PMI and ISM. But the bond market will focus on Big Jobs Friday as it is the last jobs report before September's Fed Meeting. While the rolling three-month trend line for Non-Farm Payrolls is not likely to change, and neither is the 4.3% Unemployment Rate, the bond market will pay very close attention to Average Hourly Wages. Specifically, the YOY reading which was at 2.5% and is anticipated to rise to 2.6% or 2.7%. The higher that number is, the worse it is for rates.

Flooding in Texas is dominating in the news but does not have any noticeable effect on markets thus far this morning. As Harvey is devastating much of Texas, Texas is one of the main driving engines in our national economic output. In the short term, the massive disruption will be a hit to GDP which is good for rates, but it also will cause a spike in refined gas prices which is negative for rates. Additionally, in the near term, it will cause a significant spike in construction and rebuilding which will be a larger gain to GDP in the 4th QTR. President Trump is also in the spot light as he tries to push forward with Tax Reform.

If Congress fails to pass a new spending bill by September 30, most non-emergency functions of the U.S. government would halt, furloughing workers, closing office buildings and public facilities, delaying paperwork, and more. The last time Congress dealt with this issue was October 2015, when it suspended the debt limit, then at $18.1 trillion, until March 2017. Since March, the Treasury has been using emergency cash-management techniques to avoid breaching the limit.

Currently, I remain bullish for the bond and mortgage markets based upon what I am seeing and reading from smarter men than myself.  It will take heavy selling in the stock indexes or some kind of an unexpected black swan event to appreciably drive rates much lower.  Because of this, mortgage rates are likely to continue to trade in a very tight range. We could see some mortgage rate volatility with the Average Hourly Wages report on Friday.