“The further the pendulum swings out over woe, the further it is bound to swing back over mirth.”
-Mark Twain
Mortgage rates fell to multi-year following the referendum where the United Kingdom voted to leave the E.U. at the end of last week. For now, at least, they remain at those levels.
People must be buying the dip, because equities have bounced back from the post-Brexit beating (somewhat). Stocks got walloped after Britain voted to leave the E.U. on Thursday night. Now they’ve come back (but not all the way). Interestingly, Treasury yields have more or less held steady since last week – normally Treasury and stock prices have an inverse relationship. 10-year Treasury yields were around 1.75% pre-Brexit, and immediately plummeted to about 1.45% post-Brexit. Part of this is a flight to safety, and part of it may be the pricing-out of the expectation of a Fed rate hike.
Honestly, what has changed since Thursday/Friday? Nothing. Nothing at all, other than prices. The future of the U.K. and the E.U. is still very uncertain. I can’t really draw any conclusions from the market movement, excepting that markets are volatile, and the herd mentality is strong. No real insight there, unfortunately.
Click here to get today’s latest mortgage rates.
Recent economic data:
Lots of data was issued yesterday and today.
- The final estimate of first quarter GDP came in at 1.1%, a little higher than the consensus estimate of 1.0%, and up from the second revision of 0.8%. The Atlanta Fed’s nowcast of second quarter GDP is currently at 2.6%.
- The S&P/Case-Shiller Home Price Index for April showed the 20-city index rising by 0.5% from March, on a seasonally adjusted basis. On a non-seasonally adjusted basis, prices were up 1.1% from the month prior. Both numbers came in a little below estimates. Housing remains strong, but growth is slowing.
- Consumer Confidence jumped in June, coming in at a reading of 98 versus the expectation of 93.3, and up from a level of 92.6 in May. Fundamentally, I have no idea why this happened. I question the value of these surveys, and I question whether the “consumer” is paying attention to anything whatsoever.
- The Richmond Fed Manufacturing Index for June showed a reading of -7. down from May’s reading of -1. Manufacturing is still weak, and the sky is still blue.
- Incomes and spending dipped in May. Personal Income was up by 0.2% from the month prior, missing expectations. Consumer spending was flat at 0.4%. The core PCE Deflator was up 0.2% from April, and was up 0.9% on a year-over-year basis. See my comment re: consumers above.
- The EIA Petroleum Status Report showed that crude inventories fell last week.
In the near-term, I don’t know that any of this matters, really. The markets are still digesting the Brexit, and things are going to be volatile for a while.
Some Fed discussion:
There’s not much else to discuss, so… Later today we hear from Janet Yellen. Yesterday we heard from Federal Reserve Governor Jerome Powell. Powell is generally seen as fairly neutral on the hawk-dove scale. His speech yesterday was pretty dovish, and generally seemed to indicate that the Fed is likely to keep their powder dry until things settle down. He said that “global risks have shifted even further to the downside” because of the Brexit. Further, he said:
“It is far too early to judge the effects of the Brexit vote. As the global outlook evolves, it will be important to assess the implications for the U.S. economy, and for the stance of policy appropriate to foster continued progress toward our objectives of maximum employment and price stability.”
Look at the schedule of the remainder of the Fed meetings through the end of the year: July, September, November, December. I think we can easily rule July out due to Brexit uncertainty, and the same likely goes for September unless we really start seeing some good jobs reports, rising wages, and sustainable rising inflation in the U.S. between now and then (I’d take the under on that). The November concludes six days before the presidential election. I think we can rule out a rate hike at that meeting.
So we’re left looking at December. Right now the Fed Fund futures are pricing in a scant 12% probability of a hike in December, and basically the same price of a hike in February 2017. And that seems to be as far out as the CME’s Fedwatch Tool goes. In fact, futures are showing that there is a non-zero chance of a rate cut before the end of the year. I wouldn’t make that bet, but some people are.
From a Bloomberg article this morning, regarding the chances of a hike based upon money market derivatives:
“Traders, who have consistently been better at projecting the path of interest rates than the Fed itself, are now pricing in a greater probability that policy makers will cut rates in upcoming meetings than raise them. They don’t assign more than a 50 percent chance of an increase until the beginning of 2018, and don’t price in a full rate hike until the final quarter of the year.”
Take it all with a grain of salt, but pay attention to the trend. The Fed wanted to hike 3 or 4 times this year. They’ve hiked once. It seems unlikely they will hike again, and while I believe it to be unlikely, there is a chance they could cut rates this year.
Is this the new normal? I have no idea, and I don’t know that anyone else does either. One thing I can say is that if you were holding your breath waiting for inflation, you would have died sometime in 2012.
Don’t wait for rates to rise. Start your mortgage process now.
What’s the takeaway for rates this week?:
There’s not much to say here. Rates are close to historic lows. If you want to refinance, now is an excellent time. If you’re looking to buy a new house, now is an excellent time. If you have a mortgage, you pretty much owe it to yourself to call some lenders and see if you can shorten your rate or term, or otherwise put yourself in a more advantageous financial situation.
There really is no telling how long rates will stay this low. I really doubt we’ll see a jump in rates in the near future, but I probably said the same thing before the taper tantrum. Don’t try to time the market, it doesn’t necessarily move rationally. I *strongly* recommend you look into refinancing now. And if you’re buying, and can lock in a rate or accelerate the process, do so.
Don’t wait for rates to rise. Start your mortgage process now.
Notable events this week:
Monday:
- International Trade in Goods
- Dallas Fed Manufacturing Survey
Tuesday:
- GDP
- S&P/Case-Shiller Home Price Index
- Consumer Confidence
Wednesday:
- Personal Income and Outlays
- Janet Yellen speaks
- Pending Home Sales Index
- EIA Petroleum Status Report
Thursday:
- Weekly Initial Jobless Claims
- Chicago PMI
Friday:
- PMI Manufacturing Index
- ISM Manufacturing Index
- Construction Spending
from Total Mortgage Underwritings Blog http://ift.tt/29aM6rn
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