Mortgage Rates Respond Upward to Economic News

Mortgage rates started on the wrong side of the tracks today before the data, and headed even further upward when the data broke this morning.  The North Koreans announced they now are not going to target Guam, and the belligerent rhetoric was softened a bit. It was expected that cooling would back the two sides away from those rash comments that flooded markets last week - what purpose to start a war that will likely kill 2 million people and bring the world to the brink of catastrophe? Stock indexes rallied, following through from yesterday on the relaxing of tensions.

Then at 7:30AM, three key data points - the most important July retail sales. Sales boomed and doubled expectations, reviving the view that the consumer is not dead yet. Not only double the forecasts, but revisions to June from -0.2% to +0.3%.  May revised to unchanged from -0.1%. The upward revisions to June and May will be positives for second-quarter GDP revisions.

The August NY Empire State manufacturing index leaped to unexpected highs. The 6-month outlook, at 45.2, is up more than 10 points in the month and back at its expansion highs. Like retail sales, this was a strong number even if it is a narrow geographical sample and is highly subject to wild swings.

The final reports were the July import and export prices, which were off the mark a bit, but nothing as spectacular as the two previous reports above.

Within 30 minutes, we saw the 10yr jump to 2.28% and MBSs at a negative 28BPS.  The next two data points, the August NAHB housing market index and June business inventories showed better numbers than anticipated as well, but not as much of a difference.

Not a good start even though technicals remain slightly positive, although weakening with the price declines today on better retail sales and the relaxing of geopolitical tensions. MBS prices are a little better at 11:30AM, and the 10yr is at where it opened at 2.26%.  Watch the market and look at your risk tolerance, as the swing in this narrow gap is swinging upward.