![Mortgage Investors Group in [Dynamic1]](../assets/images/mortgage-investors-group.svg)
Market Comment
Mortgage bond prices finished the week sharply lower which put upward pressure on rates. Fed Chair Powell spoke Monday and said additional rate cuts were expected but was clear that there is no preset course of action. Trading was negative most of the week with significant upward pressure on rates Friday following the stronger than expected employment report. Unemployment came in at 4.1% vs 4.2%. Payrolls rose 254K vs 140K. Average hourly earnings rose 0.4% vs 0.3%. The rest of the data was mixed. ISM index was 47.2 vs 47.5. ADP employment was 143K vs 120K. Weekly jobless claims were 225K vs 220K. The 4-week average was 224.25K vs 225K. Mortgage interest rates finished the week worse by approximately 5/8 of a discount point.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
|---|---|---|---|
| Consumer Credit | Monday, Oct. 7, 3:00 pm, et | $13.5B | Low importance. A significantly large increase may lead to lower mortgage interest rates. |
| Trade Data | Tuesday, Oct. 8, 8:30 am, et | $71.1B deficit | Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. |
| Treasury Auctions Begin | Tuesday, Oct. 8, 1:15 pm, et | None | Important. 3Y, 10Y, and 30Y will be auctioned through Thursday. Strong demand may lead to lower mortgage rates. |
| Fed Minutes | Wednesday, Oct. 9 2:00 pm, et | None | Important. Details of the last Fed meeting will be thoroughly analyzed. |
| Consumer Price Index | Thursday, Oct 10, 8:30 am, et | Up 0.1%, Core up 0.2% | Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates. |
| Weekly Jobless Claims | Thursday, Oct 10, 8:30 am, et | 220K | Important. An indication of employment. Higher claims may result in lower rates. |
| Producer Price Index | Friday, Oct. 11, 8:30 am, et | Up 0.1%, Core up 0.2% | Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates. |
| U of Michigan Consumer Sentiment | Friday, Oct. 11, 10:00 am, et | 70.1 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
Play It Safe
Inflation, real or perceived, erodes the value of fixed income investments such as mortgage-backed securities (MBSs.) These are the debt instruments that dictate mortgage interest rates. We saw a sharp spike in rates following stronger than expected employment figures last Friday. The wage component of the release was also higher than expected. We have consumer and producer inflation readings headed our way this week. Signs of inflation could cause mortgage interest rates to rise in the short term. Tame inflation readings could reverse the recent trend of higher mortgage rates.
With so much uncertainty, a cautious approach to float/lock decisions in this environment is wise. The Fed did cut rates and signal the possibility of future rate cuts. However, as we all have seen, that doesn’t automatically translate into lower mortgage rates in the short term. We strongly believe the Fed will attaint their goal of getting the Fed funds rate back near 2%. However, it will take time and there will likely be continued up and down trading in the weeks and months ahead.
