Mortgage Rates Again Trying to Move Lower

Mortgage rates are again trying to move lower, as we see at 10:30AM the 10yr is at 2.29% and MBSs are in positive territory as they have been most of the week. September retail sales were strong, but not as firm as estimates, up 1.6% against +1.9% expected. Excluding auto sales, sales were thought to be up 0.8% but did increase 1.0%. The control group that excludes autos, restaurants, building materials and gas are another core measure and are also very positive, up 0.4%; the control group data is used to calculate GDP growth. Sales up the most in over two years and is a plus for the equity markets, but the strong improvement is built on the back of the hurricanes Harvey and Irma: sales of goods to replace losses caused by hurricanes. September auto sales released last week showed cars and light trucks sold in September at the fastest annualized rate since 2005. If that were the only data this morning, mortgage rates would be moving higher…

September CPI was the key report and it did not meet expectations.  The CPI data adds more to the idea inflation is still not increasing as the Fed wants - as a reaction, interest rates declined, and MBS prices increased. Most inflation reports have continued to affirm a lack of inflation pressures and removes the fear of parking money in US treasuries. This, in turn, pushes mortgage prices higher.

BofA reported stronger Q3 earnings than thought: +15%. Wells Fargo disappointed with weaker earnings due to legal and other costs within the bank over mortgage practices and sales scandals. Wells Fargo is the largest U.S. residential mortgage lender, making more than $98B of loans in the first half of the year, according to the trade publication Inside Mortgage Finance.

The U. of Michigan consumer sentiment index expected at 95.5 from 95.1 in September, the index exploded to 101.1, the highest since 2001. August business inventories were expected to be +0.6%, as reported +0.7%.

Scanning news this morning, there were the usual comments about retail sales and now the explosion in the U. of Michigan consumer sentiment index. On the outlook for stock markets - one recognized professional saying the stock market could capitulate as it did in Oct 1987 when the DJIA and other indexes dropped over 40% in three sessions. The other, a retired multi-millionaire recluse Dr. Steve Sjuggerud, a much-followed financial analyst, saying that within the next two to three years the DJIA will increase to 40K to 50K (now 22K). The point - there is a chasm as wide as the Grand Canyon over what will happen.

The IMF meeting underway but no news yet.