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MIG Market Watch, August 5th, 2019

MIG Market Watch, August 5th, 2019


MIG Market Watch, August 5th, 2019

MARKET COMMENT

Mortgage bond prices finished the week higher which helped rates fall. Personal income rose 0.4%, outlays rose 0.3%, and Core PCE inflation rose 0.2% all as expected. Consumer confidence was 135.7 versus the expected 125.5. ADP employment rose 156K which was near predictions. The Fed cut rates 25 basis points as expected and described the change as a “mid-cycle” adjustment. Most of the improvements came Friday morning as the data was tame. Unemployment was 3.7% as expected. Non-farm payrolls rose 164K versus the expected 167K. The employment report is one of the most important releases each month. A relatively in line payrolls figure helped the argument that the Fed should continue down the rate cut path. Mortgage interest rates finished the week better by approximately 3/8 of a discount point.

 

LOOKING AHEAD

Economic Indicator Release Date & Time Consensus Estimate Analysis
3-year Treasury Note Auction Tuesday, Aug. 6,
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. 7,
1:15 pm, et
None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Consumer Credit Wednesday, Aug. 7,
3:00 pm, et
$17.4B Low importance. A significantly large increase may lead to lower mortgage interest rates.
Weekly Jobless Claims Thursday, Aug. 8,
8:30 am, et
208K Important. An indication of employment. Higher claims may result in lower rates.
30-year Treasury Bond Auction Thursday, Aug. 8,
1:15 pm, et
None Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates.
Producer Price Index Friday, Aug. 9,
8:30 am, et
Up 0.1%,
Core up 0.3%
Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates.

 

Consumer Credit

Inflation is typically the most important focus for the mortgage interest rate market. A lot of increases in interest rates have come following stronger stocks. As stocks struggle, we often see rates improve. In addition, mortgage bonds have benefited from global economic uncertainty as investors search for safe havens amid economic concerns in the euro zone. This flight to quality buying of mortgage bonds has helped push prices higher and mortgage interest rates lower.

The level of interest rates reflects the balance between the supply of money from investors and the demand for money by borrowers. Rising inflationary expectations and uncertainty about the performance of the bonds cause investors to require higher rates of return on investments. This compensates for the erosion of the principal that eventually is returned to them or the risk of non-performance. Regardless of inflation levels, rising economic activity can increase the demand for investors’ funds, and thereby lead to higher interest rates. Investors pulling money out of bonds and into stocks could pressure mortgage rates. The demand for money diminishes as the economy struggles. The Fed lowers interest rates as an incentive to businesses and consumers to increase their borrowings. The Fed hopes manufacturers will increase their investments in plants, equipment and inventories and that consumers will push housing construction along with consumer spending and with that, consumer debt. Analysts will monitor this week’s consumer credit levels. There is much debate in the financial community about the future. One thing most market participants agree on is both the bond and stock markets are going to see additional volatility.

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