Market Comment
Mortgage bond prices finished the week near unchanged amid considerable volatility. Rates improved early in the week as fallout from the BREXIT vote continued to reverberate across the globe which resulted in flight to safety buying of U.S. debt instruments. Factory orders fell 1% versus the expected 0.9% decline. The trade deficit was $41.14B versus the expected $40B. Most of the gains were reversed late in the week tied to employment data. June ADP employment report rose 172K versus the expected 152K increase. Weekly jobless claims were 254K versus the expected 270K. The employment report was mixed. The headline figure showed unemployment @ 4.9% versus the expected 4.8%. However, the payrolls component was a stronger than expected +287K versus +185K. Mortgage interest rates finished the week near unchanged.
LOOKING AHEAD
| Economic Indicator |
Release Date & Time |
Consensus Estimate |
Analysis |
| Treasury Auctions Begin | Tuesday, July 12, 1:15 pm, et |
None | Important. 3Y Notes on Tuesday, 10Y Notes on Wednesday, and 30Y Notes on Thursday. |
| Fed “Beige Book” | Wednesday, July 13, 2:00 pm, et |
None | Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates. |
| Weekly Jobless Claims | Thursday, July 14, 8:30 am, et |
260K | Important. An indication of employment. Higher claims may result in lower rates. |
| Producer Price Index | Thursday, July 14, 8:30 am, et |
Up 0.3%, Core up 0.1% |
Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates. |
| Retail Sales | Friday, July 15, 8:30 am, et |
Up 0.4% | Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates. |
| Consumer Price Index | Friday, July 15, 8:30 am, et |
Up 0.3%, Core up 0.2% |
Important. A measure of inflation at the consumer level. Lower than expected increases may lead to lower rates. |
| Industrial Production | Friday, July 15, 9:15 am, et |
Down 0.3% | Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates. |
| Capacity Utilization | Friday, July 15, 9:15 am, et |
75% | Important. A figure above 85% is viewed as inflationary. Weaker figure may lead to lower rates. |
| U of Michigan Consumer Sentiment | Friday, July 15, 10:00 am, et |
94.2 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
More ECB QE
The European Central Bank is in a difficult position with the BREXIT developments. They spent 81.5B euros on quantitative easing in June and hold over a trillion euros of debt. The challenge now is that over 50% of sovereign bonds yield under 0%. The ECB initially indicated there would be no QE changes over the summer but now are faced with huge uncertainty as the BREXIT proceeds.
The good news for U.S. borrowers is the signal that the global economic recovery is still wobbly. Flight to safety buying of U.S. debt instruments such as mortgage bonds continued into the first portion of July. This caused prices to rise and rates to fall. Now is a great time to take advantage of the historically favorable rates.
