![Mortgage Investors Group in [Dynamic1]](../assets/images/mortgage-investors-group.svg)
Market Comment
Mortgage bond prices finished the week higher which put downward pressure on rates. Rates improved gradually throughout the week with some selling pressure Friday morning tied to the higher-than-expected inflation reading. The data showed weakness with some price pressures. Existing home sales were 403M vs 3.96M. The FHFA house price index fell 0.4% vs the expected 0.1% increase. Consumer confidence was 93 vs 100. New home sales were 623K vs 690K. Q1 GDP fell 0.5% vs the expected 0.2% decline. Durable goods orders rose 16.4% vs 8.5%. Weekly jobless claims were 236K vs 245K. Income fell 0.4% vs the expected 0.3% increase. Spending fell 0.1% vs the expected 0.1% increase. Core PCE rose 0.2% vs 0.1%. Mortgage interest rates finished the week better by approximately 3/8 to 1/2 of a discount point.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
|---|---|---|---|
| ISM Index | Tuesday, July 1, 10:00 am, et | 47.2 | Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates. |
| Construction Spending | Tuesday, July 1, 10:00 am, et | Down 0.1% | Low importance. An indication of economic strength. Significant weakness may lead to lower rates. |
| ADP Employment | Wednesday, July 2, 8:15 am, et | 80K | Important. An indication of employment. Weakness may bring lower rates. |
| Employment | Thursday, July 3, 8:30 am, et | 4.2%, Payrolls +129K | Very important. An increase in unemployment or weakness in payrolls may bring lower rates. |
| Weekly Jobless Claims | Thursday, July 3, 8:30 am, et | 239K | Important. An indication of employment. Higher claims may result in lower rates. |
| Trade Data | Thursday, July 3, 8:30 am, et | $70B deficit | Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. |
| Factory Orders | Thursday, July 3, 10:00 am, et | Up 7.9% | Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
Inflation
According to the Bureau of Economic Analysis, “The PCE Price Index Excluding Food and Energy, also known as the core PCE price index, is released as part of the monthly Personal Income and Outlays report. The core index makes it easier to see the underlying inflation trend by excluding two categories – food and energy – where prices tend to swing up and down more dramatically and more often than other prices. The core PCE price index is closely watched by the Federal Reserve as it conducts monetary policy.”
The Fed wants to see that their high interest rate stance has pushed back inflationary pressures. Tame inflation readings alleviate price pressures on MBSs. However, higher readings, like the uptick on Core PCE last Friday, cause uncertainty. The last thing the Fed wants to do is cut rates only to have to reverse course shortly thereafter. The recent PCE report does not change the future Fed outlook materially, but it does support the Fed’s recent reluctance to cut rates. Traders are optimistic that the Fed will eventually cut rates this year however the timing remains uncertain. They are clear they want to win the inflation fight and have noted they will err on the side of keeping rates higher for longer rather than cutting too soon. A cautious approach to float/lock decisions is prudent heading into economic data in the weeks and months ahead.
