Mortgage rates fell again last week. Freddie Mac’s Primary Mortgage Market Survey showed the average rate on a 30-year fixed rate mortgage fell seven basis points to 3.41% with .5 points. The all-time low recorded by the survey (which started in 1971) was 3.31%. Global interest rates are falling for the same reason that they’ve been falling for the past few weeks: the Brexit caused a large bout of global uncertainty that has caused a flight to safety. This has prompted investors to move heavily into bonds. Seemingly nothing else really matters, because last week’s domestic economic data was actually quite good, including a very solid employment report, and yields barely budged at all. The domestic data is pretty much a sideshow at this point, despite the evidence that the U.S. economy is improving. We hear from a lot of Fed members this week, and it wouldn’t shock me if they attempt to jawbone rates higher, and claim that September or November rate hikes are still on the table. I don’t think the market is buying what they are selling.
Long story short: rates are extraordinarily low. If you have a mortgage, pick up the phone and see if you can reduce your rate or term. If you’re buying a new home, you chose a great time to do so.
Click here to get today’s latest mortgage rates.
Today’s economic data:
Today there are some short duration Treasury auctions. There is one economic report, the Labor Market Conditions Index, which is of little consequence under normal circumstances. It’s an index of 19 separate labor market indicators, and is still fairly new and considered a work in progress with regard to accurately measuring anything. Under present circumstances, I would say it doesn’t matter whatsoever. Anyway, the LCMI for June came in at -1.9, and May’s number was revised upward. This is the sixth consecutive negative reading.
The week that was:
I don’t really know what to say about last week. We had some of the strongest domestic economic data that we’ve seen recently, and it didn’t do much more than help equities rally. The monthly employment numbers, which are generally the most important report of the month, came in much better than expectations. It was anticipated that the economy added 180k jobs in June, the actual print came in at +287k. Unemployment ticked up a notch to 4.9%, but that’s a reflection of the labor force participation rate increasing. Wage gains were still tepid, but this was a still a very strong report. Usually, with such a report, we would anticipate that bonds would sell off, and that interest rates would rise. This happened very briefly, and then bonds rallied, and we are left pretty much where we were prior to the jobs report. Presently yields on 10-year Treasuries are around 1.38%.
It’s been said to death, but right now the market is fixated on the impact of the Brexit, and is possibly beginning to take into account the ongoing bank crisis in Italy. The issues that we’ve seen in Greece that roiled the markets pale in comparison to the potential issues in Italy. We’ll definitely be hearing a lot more about this in the coming weeks.
To recap: right now, the Brexit/global uncertainty is the main (only?) thing that is really driving the markets.
Looking ahead:
I expect more of the same. This week we get some measures of inflation, some (more) insight into the labor situation, a series of Treasury auctions ($56 billion in 3, 10, and 30 years being issued versus $52.5 billion in maturities), and a whole lot of Fedspeak. Arguably, the Fedspeak will be the most interesting* part of the week.
Bearing in mind that while the Fed has repeatedly said that the future course of monetary policy is “data dependent,” the FOMC came into the year saying they anticipated 3-4 rate hikes. So far we’ve seen one. The FOMC has gone to lengths to indicate that every meeting is a “live” meeting. And now, we’re in a situation where the market has greatly discounted the possibility of a rate hike in July or September. We’re staring down the barrel of record low yields when the FOMC clearly wanted to tighten policy. I’ll grant you that few saw the Brexit coming, but it happened, and now many central bankers are talking about easing policy.
As I mentioned at the top, I think we could see the various Fed members attempt to jawbone rates higher. I don’t anticipate that this will be successful. I’m sure the Fed wants to maintain credibility, but, I don’t see how it’s possible for them to even consider hiking in the immediate future, even with the U.S. economy heating up. If they did so, it would upset the apple cart in a big way (not going out on a limb here). Their hands are tied. Anticipate hearing a lot about asymmetric risks, and data dependency, and so forth. The same stuff we’ve been hearing for months now.
I think we’ll continue to see a sideways grind next week, and that interest rates will approximately remain at the same level they are now, give or take a few basis points.
*I use interesting as a relative term here.
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What’s the takeaway for rates this week?:
I don’t have a crystal ball, but I don’t see anything on the horizon that will change the present situation. I’ll say again what I said at the top: rates are historically low. If you have a mortgage, you absolutely owe it to yourself to see if you can refinance into a lower rate or potentially reduce the term of your loan. Everyone’s financial situation is different, but over the past week I’ve heard of some borrowers getting pretty crazy deals with no closing costs. It costs you nothing other than time to make a phone call.
If you’re purchasing a home, you chose the optimal time to do so, rate-wise.
Don’t wait for rates to rise. Start your mortgage process now.
One more thing:
Japanese Prime Minister Shinzo Abe’s coalition won a supermajority in the upper house of the Japanese parliament. This is at least partially a referendum on Abenomics, Abe’s economic policy which is constituted of fiscal stimulus, monetary easing, and structural reforms. It seems that we should expect more stimulus from Japan soon. However, another thing that Abe is trying to accomplish is to amend Japan’s constitution. And now he has the votes to request a referendum to do so. One of the specific changes would be the remove the post-WWII pacifist article. From the Guardian this morning:
“The most controversial move would be a revision of article 9 to allow Japan’s self-defence forces to act more like a conventional army. The clause forbids Japan from using force to settle international disputes and restricts its land, air and naval forces to a strictly defensive role.
Rewriting the constitution, imposed by the US occupation authorities after the second world war, has been the ideological driving force behind Abe and other conservatives who believe it unfairly restricts Japan’s ability to respond to new threats such as international terrorism, an increasingly assertive China and a nuclear-armed North Korea.”
I’m no expert on Japanese politics, and there does not appear to be a clear consensus on the likelihood of this happening. I do know that anything that ratchets up worldwide tensions (and this would almost certainly do that) is unlikely to be a net positive for the global economy at this precarious point in time. This is yet another thing to monitor.
Here’s a article from the Economist for a little more background: “Right side up – a powerful if little-reported group claims it can restore the pre-war order.”
Notable events this week:
Monday:
- Labor Market Conditions Index
- Treasury auctions
- Fedspeak
Tuesday:
- Job Openings and Labor Turnover Survey
- Treasury auctions
- Fedspeak
Wednesday:
- EIA Petroleum Status Report
- Treasury auctions
- Beige Book
- Fedspeak
Thursday:
- Weekly Jobless Claims
- Producer Price Index – Final Demand
- Fedspeak
Friday:
- Consumer Price Index
- Retail Sales
- Empire State Manufacturing Survey
- Industrial Production
- Fedspeak
from Total Mortgage Underwritings Blog http://ift.tt/29D2dhb
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