Mortgage Rates in Limbo

Mortgage rates moved just a tad bit lower today, despite an absence of improvement in underlying bond markets.  There was no change this afternoon from morning pricing levels.

Tomorrow a very key report - June personal income and spending. In the report is the PCE (personal consumption expenditures), Janet Yellen’s inflation favorite. Personal income is expected to have increased 0.4% but personal spending up just 0.1%. The PCE expected 0.0%, yr/yr +1.3%; the core PCE +0.1%, yr/yr +1.4%. If that is what we see it is yet another indication that inflation is still exceptionally soft compared to what most central bankers have been thinking.  

Not only income and spending, the July ISM manufacturing index, expected at 56.4 from 57.8 in June. And June construction spending, expectations for an increase of 0.5% after being unchanged in May.

The Trump administration continues to be in turmoil. Anthony Scaramucci has “resigned” as White House Communications Director, his tenure measured in two weeks. Doubt if he even had a desk yet. The resignation according to Scaramucci was to give a clean slate to the new chief of staff, retired General John Kelly. According other reports the removal was Trump’s and was at the request of General Kelly. That of course continues to drag on Trump policies and falls right into the Dems basket. Tax cuts? Health care re due? Infrastructure spending? Building the Wall? Nothing so far but a revolving door at the White House. I voted for Trump but so far not real satisfied.  

We have long said tax reform is unlikely this year.  The events at the White House add to our certainty. Congress is wandering around the building with republicans confused and split like that pea soup. Dems are not about to jump in to assist. Republicans say they are optimistic about their ability to hammer out a tax package, with the momentum to be driven increasingly by two powerful congressional committees rather than the chaotic Trump administration. Before any tax plans Congress has to deal with the budget and the debt ceiling (now a cool $19.8 trillion and increasing yearly).  Dems will not make it easy. Maybe if the stock indexes roll over as we believe they will in the fall, that might light fires for a lot of stimulus.

In summary, bond markets apparently forgot Monday was a business day, and slumbered along, essentially unchanged from Friday's close.  It is unlikely we will see any significant moves until Wednesday-Friday, as the July NFP Job Situation report takes shape.  The biggest current incentive to float is obtaining better pricing based on 15/30 day locks, compared with 30/45 day's.  Not sure that is enough to justify the risk, but at least it's something.