Rate update: Two reasons interest rates will remain flat this week

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Two reasons interest rates will remain flat this week
Nov 122019
 

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By G. Steven Bray

I’ve been writing for months about my concern about the Chinese trade dispute and its potential to move interest rates. Last week presented a poster child case for my concern. Rumors circulated that the US would rescind some tariffs and forego the planned Dec tariffs to induce the Chinese to sign phase one of a trade deal. Bond traders reacted swiftly to push rates to their highest levels in 3 months. Remember that resolving the trade dispute is considered good for the economy, and a healthy economy supports higher interest rates.

As we start this week, it looks like markets may be taking a breather. President Trump wouldn’t confirm the tariff rumors, and most of the other issues that had been weighing on rates – slowing world economies, Brexit, the impeachment battle – are far from settled. So, hitting pause makes sense while markets wait for a new source of inspiration.

I doubt we’ll get it this week, but we will have a couple candidates:

  • We’ll get two heavy-weight economic reports this week: the Consumer Price Index (CPI) measuring inflation and the Retail Sales Report. Inflation has remained muted this year, and few, including the Fed, expect that to change. Retail sales, an indicator of the consumer side of the economy, have remained solid despite the trade dispute, and most expect that to continue. If either report deviates significantly from expectations, expect interest rates to move accordingly.
  • Second, Fed head Powell has two days of Congressional testimony this week. Given that Powell had a press conference following the Fed’s meeting two weeks ago, I don’t expect he’ll reveal anything during his testimony that will move rates. However, markets will be vigilant just in case.

Rate update: Range is a nice place to be

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Range is a nice place to be
Feb 262019
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Mortgage rates remain range-bound, and fortunately for us the range is a pretty nice place to be. Rates are the best they’ve been since last summer. At some point, the range is going to break, so let’s look at the factors that may influence that break.

Rates hit their recent peak and started heading lower last Nov in response to stock market losses and concerns about the economy. The stock market has rebounded, and recent US economic data looks pretty rosy, so we don’t have those factors working for us anymore.

Trade concerns, especially the ongoing tariff battle with China, added uncertainty to the market, which put downward pressure on rates. However, it’s looking increasing possible that China and the US will resolve their trade issues and remove that as a factor.

Concerns about global economic growth have been a factor for a while, and those concerns seem to be intensifying. Recent data from Europe, China, and Japan have indicated weakening economies, and Europe still has its Brexit headache. Remember that slowing economies lead to less demand for money, which leads to lower rates.

But I’d say the biggest factor affecting rates right now is the Federal Reserve. It was the Fed meeting in Dec that put the exclamation point on the stock market swoon, and it was the Fed’s reaction to the swoon at its last meeting that solidified the current rate range. More recently, the Fed has hinted it may start buying bonds again, which would put more downward pressure on rates.

Despite those hints, Fed head Powell has been clear that the Fed is keenly interested in economic data (both US and global) and will respond accordingly. Most of the US data released this month was polluted by the government shutdown, and it won’t be until mid-Mar until that pollution clears – which could be the time rates finally leave the range.

Rate update: Tariff Twitter good for rates

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Tariff Twitter good for rates
Jun 192018
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Rates have had it good lately:

– First up was the inflation report. It matched expectations. While this put the core rate at 2.2%, above the magic 2% mark, markets were worried it would be higher. Additionally, the Fed’s favored inflation metric, the PCE, continues to be below 2%.

– Next came the Federal Reserve. While the Fed raised short term rates as expected and increased the chances of a 4th rate hike this year, Chairman Powell said that he wasn’t concerned at all with inflation getting out of control and, maybe more importantly, that we’re getting closer to a “neutral Fed funds rate.” Analysts concluded that the trajectory of Fed policy is about as tight as it’s going to get, and bond markets sighed in relief.

– The next day brought the European Central Bank meeting. The ECB did announce it will end its asset purchase program by the end of the year, a negative for rates. However, it also said it doesn’t expect to hike rates until the end of next summer, and the ECB president made a case for economic weakness during his press conference. Bond markets cheered.

– Finally, we were treated to tariff Twitter. Markets don’t really care about the imbalances caused by prior administations’ trade policy. More important is the uncertain effects of the various proposed tariffs. I still say a full-blown trade war is unlikely. The targets of the tariffs have more to lose, and negotiation is the most likely outcome. However, the uncertainty may keep a lid on rates for now.