Yesterday bond markets rallied, and mortgage rates dipped a little bit. The rally in bond appears to be mostly a reaction to a sell-off in equities. There were no significant domestic economic releases yesterday. Overnight, there was some weaker-than-anticipated economic data out of Europe, but I don’t suspect that is having much of any impact – the bond markets didn’t do much last night. To wit: yields on 10-year Treasuries flirted with 1.90% Monday night, fell to the vicinity of 1.80% during the day yesterday, and remain approximately at those levels now. Mortgage backed securities under-performed compared to Treasuries, so mortgage rates didn’t drop much, but did improve by a bit.
Freddie Mac’s Primary Mortgage Market Survey comes out tomorrow, and I think we’ll see that rates didn’t change much from last week. The last reading showed that the average rate on a 30-year fixed-rate mortgage was 3.66% with 0.6 points, which is only a few basis points above the lowest rates of the year.
Click here to get today’s latest mortgage rates.
Today’s economic data:
There’s are quite a few data points today:
- ADP’s employment report for April fell short of expectations. ADP showed private payrolls rising by 156k, versus the expectations of +193k. In the past ADP hasn’t correlated all that well with the BLS’ employment report, but it has been pretty close in recent months. We’ll see what happens on Friday.
- The International Trade Report for March came in pretty close to expectations. The trade gap decreased, mostly because imports fell. Imports falling indicates weak demand, which isn’t particularly good for the overall economic picture.
- Factory Orders were up in March, rising 1.1% from February, but February’s number were revised down to -1.9% growth. Manufacturing continues to muddle along.
- ISM Non-manufacturing reports continue to show strength, April’s print came in at 55.7, compared with the expectation of 54.7. This report has stood in contrast to most other indicators, which have been soft of late.
- Oil inventories continue to swell, according to the EIA’s Petroleum Status Report. Crude inventories rose by 2.8M barrels this week. Although oil prices are down off recent highs, I can’t see how current prices are sustainable as production continues to rise. I don’t appear to be the only one who thinks this.
As has been the case for quite some time now, the market reaction to this data has been sort of nonexistent. Perhaps participants are keeping their powder dry in advance of Friday’s jobs report.
This week’s Fedspeak:
Let’s keep this brief. Earlier in the week, I had mentioned that I thought that we would hear somewhat hawkish thoughts from the Fed, and that various speakers would emphasize that a June hike is in play*. This is pretty much what has happened so far. The markets don’t seem to be buying, though. The prices of Fed Fund futures imply a 15% probability of a rate hike in June. You have to look all the way out to December until the probability of a hike goes over 50%.
The Fed may say that June is in play, but in reality, I just can’t see how that would be the case unless we see some really good jobs reports that show wage growth, which would make for sustainable inflation. Even if this were the case, there is the possibility of a huge dose of potential global uncertainty right after the Fed meeting. Namely, the British referendum to decide whether or not to leave the E.U. occurs on June 23rd. When there was the possibility that Greece would leave the E.U. (granted, under entirely different circumstances), the markets collectively freaked out. The U.K.’s economy is many times larger, and a Brexit would be a much bigger deal than a Grexit**. Right now the polls are very close to 50-50. I cannot see the Fed hiking with the possibility of that sort of turmoil just a few days later.
*I don’t want to make it seem like this is a novel idea, a lot of people were saying basically the same thing. Tim Duy wrote about it at length here.
**Guess what? Debt issues in Greece are cropping up again. Who would’ve thought that crippling austerity measures would not be popular? This is not a problem that’s going away anytime soon.
Don’t wait for rates to rise. Start your mortgage process now.
Miscellanea:
Some topics that warrant discussion, or will warrant more discussion in the near future:
- Who’s looking forward to six months of Drumpf-Clinton? Nobody? Yeah, that’s what I thought. Sowing the wind and reaping the whirlwind, and all that. I really have no idea how the markets will react to the possibility of either candidate. Drumpf trails Clinton in early polling by 10+ points. Assuming that holds (a large assumption, I’ll grant you), it’s possible that Democrats could make gains down-ticket. It would be difficult for the GOP to lose control of the House, what with all the Gerrymandering, but I think the possibility of a shift in power to the Democrats would scare moneyed interests, and there would be market ramifications, for sure.
- Puerto Rico is screwed. Puerto Rico missed a $422 million debt payment on Monday, and is $70 billion in debt. It’s not clear what Congress will do to help, if anything. Meanwhile, 3.5 million American citizens will suffer. And the situation is only going to be exacerbated as those with means leave the island for the mainland, leaving behind those without the means to leave. This is a bad situation that is going to get worse.
- Everything is not alright in China. Debt issues could cause rising numbers of defaults. Some have warned that conditions in China could lead to a global recession. I think those fears may be overblown, but the situation definitely bears monitoring.
Click here to get today’s latest mortgage rates.
What’s the takeaway for rates?:
Rates are low. Now would be a good time to see if you could save money by refinancing your mortgage. If you’re in the market for a new home, now is a great time to get a low rate.
Don’t wait for rates to rise. Start your mortgage process now.
Notable events this week:
Monday:
- PMI Manufacturing Index
- ISM Manufacturing Index
- Construction Spending
- Fedspeak
Tuesday:
- Fedspeak
Wednesday:
- ADP Employment Report
- International Trade
- Factory Orders
- ISM Non-Manufacturing Index
- EIA Petroleum Status
Thursday:
- Weekly Jobless Claims
Friday:
- Nonfarm Payrolls
from Total Mortgage Underwritings Blog http://ift.tt/1X8z4ML
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