MARKET COMMENT
Mortgage bond prices finished the week near unchanged which kept rates flat. We started the week on a bad note as rates shot higher Monday morning. The ADP employment report showed an increase of 219K versus the expected 175K increase. A tightening labor market supports additional Fed rate hikes sooner rather than later. The ISM Index was 58.1, expected 59.5. The Fed left rates unchanged Wednesday and the market didn’t move much that afternoon. Weekly jobless claims printed at 218K versus the expected 220K. Unemployment was 3.9% as expected. Payrolls rose 157K versus the expected 190K which helped recover the earlier losses. We ended the week with discount points near unchanged.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| Consumer Credit | Tuesday, Aug. 7, 3:00 pm, et | $25B | Low importance. A significantly large increase may lead to lower mortgage interest rates. |
| 3-year Treasury Note Auction | Tuesday, Aug. 7, 1:15 pm, et | None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| 10-year Treasury Note Auction | Wednesday, Aug 8, 1:15 pm, et | None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Weekly Jobless Claims | Thursday, Aug. 9, 8:30 am, et | 218K | Important. An indication of employment. Higher claims may result in lower rates. |
| Producer Price Index | Thursday, Aug. 9, 8:30 am, et | Up 0.3%, Core up 0.2% | Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates. |
| 30-year Treasury Bond Auction | Thursday, Aug. 9, 1:15 pm, et | None | Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates. |
| Consumer Price Index | Friday, Aug. 10, 8:30 am, et | Up 0.2%, Core up 0.2% | Important. A measure of inflation at the consumer level. Lower than expected increases may lead to lower rates. |
TARIFFS AND RISING RATES
The Fed indicated the US economy remains strong with moderate prices pressures. They signaled they are prepared for additional rate hikes. The financial markets place the odds of a September rate hike at more than 93%. Most analysts predict another hike to follow September’s before the end of the year.
Rising interest rates have to potential to stall the recovery. Two sectors of the economy especially sensitive to rising rates are housing and automobile sales. Auto sales in July fell as incentives decreased, rates increased, and tariffs factored into supplies. Housing remains strong despite recently higher rates. However, rising rates generally put some pressure on housing starts and home sales.
The Fed stated specifically, “In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.”
The recent trend is toward higher rates. Now is great time to take advantage of these historically favorable levels.
