Mortgage Rates Held Steady Today

Mortgage rates held steady today, and were slightly lower in some cases. However, as much as they may have moved lower, they did try to make a move higher. Needless to say, I was trying to figure out which way this roller coaster was going to move.  This morning August PPI was slightly stronger than forecasts when seen on the yr/yr basis.  The data does not include Harvey or Irma so the September reading is likely to be higher. Tomorrow August CPI, a more important inflation reading, with the estimate for CPI +0.3% m/m, yr/yr +1.9%.

Central banks have continued to talk about the lack of inflation and the outlook for any increase. Finally the ECB and the Fed have abut tossed in the towel and have been chatting that inflation will likely remain low for possibly years. While PPI and CPI are important to markets and central banks, the Fed uses the PCE (personal consumption index) as its key inflation reading that is included with monthly consumer income and spending, the next release is on Sept 29th for August.

Also, tomorrow weekly claims are thought to be up 2K to 300K after jumping 62K last week due to Harvey. The Irma effect will not hit unemployment claims for another week but will push claims temporally higher. Markets will not get concerned by the increases.  

Tax cuts are now on the front burner.  Meetings are occurring with Trump and bipartisan groups. Trump is about to embark on a 13-state swing pumping up tax cuts. Some comments today that high-income wage earners will not see a cut, or if they do it will be very small. Democrats may get in line if high income folks are not favored. The main ingredient in the possible cuts is corporate taxes, attempting to lure businesses back to the US (US corporate taxes the highest in the world). I have been outspoken that a tax cut will not happen this year.  Maybe I was a bit premature, but if Democrats join in then cuts become more likely. That said, there is a long time between now and the end of the year and although today was a huggee day at the White House with Democrat leaders there is a wide ditch to cross between the two parties already aiming to the 2018 elections. House Speaker Paul Ryan said that an outline of a tax plan, which is backed by tax writing committees, will be released during the week of September 25.

Treasury completed the bi-weekly borrowing today with $12B of 30s re-opening the issue from August.  Slightly better than the demand for yesterday’s 10yr and Monday’s 3yr that were very soft and sloppy.

Crude oil continuing to increase, approaching the pivotal $50.00 level. Treasury yields are continuing to increase today, as it closed at 2.19%. The stock market, although not big increases in the key indexes, is improving. No signs investors are overly worried about the over-bought market but money managers are beginning to accumulate cash and buying protection in options. The S&P 500 rally this week becoming the second-strongest bull run in US history.  Valuations across bonds and equities are at or near historical highs, and the lack of serious volatility this year has spurred fears that a reversal is overdue. Not new news, we have been reading about the over-baked markets for months but you know what has been happening. A bubble?  Some believe you cannot see a bubble before it happens, certainly that is what Alan Greenspan said about the housing bubble in 2006.

In summary, bond markets idled in place today, with minor losses by mid PM.  We are now squarely back in recent ranges, with treasury yields at 2.19%.  Tomorrow we get Core CPI (inflation) data – and it is likely to affect bond market's outlook.  Still too early to start floating deals within 30 days of closing, at least for most clients.  My crystal ball isn't showing where we go from here, at least today.