Tag: interest rates

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By G. Steven Bray

Rate watchers hardly could have dreamed of a better result for last Friday’s jobs report. Simply put, the report stunk. Jobs created were about 2/3rds of what was expected, and the numbers for previous months were reduced. Wages once again are stagnant, and hours worked declined. And to top it all off, the workforce participation rate dropped to a level not seen since 1977.

Markets responded by dropping rates to their lowest levels in 5 months, at least briefly. Markets seem ill-at-ease with rates this low, and they’ve bounced back this week towards their previous range. Now, understand this is a pretty sweet range with 30-year mortgage rates around 4%. But it just feels like they should be lower.

I think markets are ruminating – yes, like a cow. Interest rates are most strongly correlated with inflation and economic growth. Inflation continues to be almost non-existent and thus is exerting no pressure on rates. US consumers finally are providing some support for the US economy, but global economies are showing signs of struggle, especially the Chinese economy. Does this jobs report signal the US economy is turning, too? Finally, we have the Fed, which seems bound and determined to raise rates this year. Grind that cud.

For the near term, I suspect rates will hold their current range, seeking more input to set a direction. That input may come in the form of an unexpected event, which makes predicting the medium term a crapshoot.

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

By G. Steven Bray

The Federal Reserve didn’t just postpone a rate hike last Thurs. It appeared to give itself a new job description, and in the process, introduced new uncertainly into the markets.

The Fed has a dual mandate to try to maximize employment and keep inflation in check. On Thurs, the Fed said it now is concerned about global growth prospects and market stability.

Granted, both may affect the Fed’s original mandates, but identifying them as influencing the Fed’s rate decision is, well, interesting. And what really got markets moving last week was the Fed’s gloomy assessment of global growth. While markets have noticed disappointing growth headlines, the Fed statement caught everyone by surprise and has them thinking is it really this bad?

So where does this leave us? If the global economy is tanking, rates should improve. The Fed said it still wants to hike rates before the end of the year, but that seems unlikely given its new focus on global growth. On the other hand, the most recent jobs data has shown a slight untick in wages. Should that continue, US inflationary pressures could build even as global pressures relax. Any hint of inflation could send rates up quickly.

That leaves us right back in the previous rate range with no clear direction for higher or lower rates. If you haven’t locked your mortgage rate, float cautiously.

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

By G. Steven Bray

Fed week is finally here. The Federal Reserve will decide this week whether to raise short-term interest rates. Markets are pricing in only a 28% chance of the Fed raising rates, and the consensus of economists is that the Fed won’t pull the trigger. So, how does this affect mortgage rates?

Until the Fed’s announcement on Thurs, I don’t expect rates to move too much absent some unexpected happening. Markets are in wait-mode. This prediction is a little risky because this week provides some important economic reports, including retail sales and consumer inflation numbers. Should either of these be very strong, rates could trickle higher in anticipation of a Fed rate hike.

If the Fed doesn’t hike short-term rates on Thurs, we could see a short relief rally, meaning lower mortgage rates, but I think it will be very short and rather shallow. Markets generally don’t expect a hike now, and they’ll just start anticipating the next Fed meeting.

If the Fed hikes rates on Thurs, I think we could see an outsized initial reaction with rates rising quickly. However, you must remember that the Fed sets short-term interest rates. Mortgage and other longer-term rates are more in tune with inflation expectations and global economic concerns. For that reason, I think rates could recover within a couple weeks, especially if the Fed reiterates its intention to raise rates very slowly.

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

By G. Steven Bray

Despite the recent wild swings on stock markets, the bond market has remained rather sedate, but this week could change that. This is a jobs report week, and the Federal Reserve has made it clear it’s watching the data and events over the next two weeks to decide whether or not to raise short term interest rates. A strong jobs report typically has the potential to boost interest rates, but this week’s report has the added significance that it could tip the Fed’s hand in favor of a rate hike.

But as I’ve discussed before, in the long run, a Fed rate hike may be meaningless for mortgage rates. Longer-term rates, like mortgage rates, are more sensitive to expectations for growth and inflation. While a Fed rate hike may temporarily boost mortgage rates, once the shock wears off, I think rates are likely to return to their current trend given weakening global growth signals.

In the meantime, if you’re floating your mortgage rate, be cautious. We’ll get several other important economic reports this week in addition to the jobs report. Mortgage rates are resisting reacting to the stock market swoon, which suggests to me that investors don’t want to get caught with rates too low. Strong economic data could convince markets that a Fed rate hike is certain, which could lift rates quickly.

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

By G. Steven Bray

Despite the wild ride for equity markets over the last week, bond markets have moved relatively little. Usually when markets melt down, you see investors flock to the safety of bonds, pushing rates down, but not so much this time. I’ve seen lots of theories that try to explain why this time is different.

One theory says that markets still are expecting the Fed to raise short-term interest rates in Sep, and this is keeping pressure on rates. I’m not sure I buy this one given that the recent equity market chaos may have taken a Sep rate hike off the table.

Another says the US economy still shows relative strength. The drama has originated overseas, particularly with China. These theorists say it’s not clear that a Chinese collapse would drag down the US economy. I think this theory has some merit. While US economic growth isn’t stellar, it’s the best horse at the glue factory. This leaves the bulls in control of market movement, at least for now, and that means there’s a risk of rates bouncing back.

For those wanting still lower rates, I think we’re going to need continued market turmoil abroad before the bears take control at home. That’s certainly possible, but it’s also unpredictable.

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

By G. Steven Bray

The jobs report last week was pretty much what markets expected, and rates responded with equivocation – down a little Fri, up a little today. Markets seem to be searching for direction again.

Some think that will come with the Sep Federal Reserve meeting. Most analysts are saying the jobs report was strong enough to give the Fed the green light to start raising short-term rates at that meeting, and I don’t disagree. However, I don’t agree that spells the end of low mortgage rates. The Fed directly influences short term rates. Longer-term rates, such as mortgage rates, are more sensitive to economic conditions and inflation. As we’ve discussed before, while the economy continues to add jobs at a modest pace, other measures of economic health are less robust. In particular, wage growth and retail sales both have been lackluster. Add to that a softening world economy, highlighted by a slowdown in China, and you have a good case for clouds on the horizon. Uncertainty is the friend of lower mortgage rates.

The report to watch this week is the retail sales report on Thurs. A strong report is likely to push rates up. A so-so report is likely to leave us meandering.

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

By G. Steven Bray

Bond markets are still searching for something to motivate a move towards higher or lower rates. We had a contender last week with very weak wage growth and economic turmoil overseas. But this was really just more of the same, and with the jobs report due this week, markets hit the pause button again.

Look for two things from the jobs report on Fri. First, analysts predict the economy gained a bit more than 200k jobs last month. If the reality was very different from that, rates are likely to move. I think fewer jobs created is the more potent miss because it will reinforce a budding narrative that the economy is softening.

Maybe the more important aspect of the report will be reported wage growth. Earlier this year, it appeared that wages, which have been stagnant during this recovery, finally might be rising. But recent economic reports have turned any hope to despair. Friday’s report could revive that hope if it shows significant wage growth, and that could prod rates higher.

The wildcard out there right now is China. The Chinese economy is slowing. The question is how much that will affect the US economy. It’s too soon to tell, but the uncertainty will keep some downward pressure on rates.

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

By G. Steven Bray

Even though mortgage rates drifted slowly lower last week, I would call the risks of higher and lower rates fairly balanced at this time.

European economies are showing nascent signs of recovery, but China is slowing. The US economy isn’t booming, but it isn’t collapsing. On a more granular scale existing home sales hit their highest level in years while new home sales took a dive. Employment growth continues unabated while wage growth continues to be stagnant.

This contradictory data combined with the typical summer doldrums is leaving markets looking for direction. I doubt they’ll find it in this week’s Fed meeting. While the Fed is widely expected to announce a rate hike in Sep, it’s unlikely it will change its posture this week.

The most meaningful data this week may be Friday’s release of 2nd quarter GDP numbers. While this is backward looking data, markets may view a strong reading as giving the Fed a green light to raise rates in Sep.

But just because the Fed raises rates doesn’t mean mortgage rates are going to rise. The Fed directly influences very short-term rates. Longer-term rates, such as mortgage rates, are more heavily influenced by expectations of economic growth and inflation, and on that we have our contradictory data.

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

By G. Steven Bray

For rate markets, it’s been a summer of headlines and volatility so far, especially Greece and China, so the onset of the summer doldrums feels somewhat odd. The summer doldrums kick in as investors take vacation, and market movement seems to slow down. Fortunately, prior to that onset, market sentiment seemed to have balanced. While investors are still concerned about the effects of a pending Fed rate hike, other factors are pulling rates back, including some weak economic data last week.

This week’s economic calendar provides some housing data but little else. Absent some truly unexpected results, it’s likely rates will hang in a narrow range looking for the next source of momentum. During the doldrums, that could take weeks. I’d say the most likely candidates at this point are US jobs data in two weeks or further weakening reported out of China. The former could move rates either way. The latter could start another rate rally.

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

By G. Steven Bray

If you only paid attention to the headlines today, you’d think Greece won a new bailout deal. It’s not that simple. The Greek parliament has to approve several austerity measures, including pension reforms and sales tax increases, by Wed to move the deal forward. The problem is these measures are harsher than the ones the Greek people rejected in the referendum a week ago. I’m not sure we’ve put this one in the rearview yet. If Greece balks at the measures, we’re looking at a default. If it doesn’t, Europe has kicked the Greek can down the road a little further.

Our other major source of uncertainty last week was the plunging Chinese stock market. The Chinese government implemented extraordinary measures, including a huge backstop of equity buying by the government. The measures seem to have plugged the hole in the dike. Whether the plug is temporary remains to be seen.

As we’ve discussed before, economic uncertainty is a friend to low interest rates. As uncertainty waned last week, interest rates drifted higher again. Absent economic concerns, the momentum in the market seems to be for higher rates. And I don’t see that changing soon without additional unexpected headlines.