Market Commentary

For the week of February 11, 2019

TRADE WAR AND ANOTHER POTENTIAL SHUTDOWN CONTINUE TO LOOM OVER RATE MARKETS

 

THIS WEEK'S MORTGAGE RATE SUMMARY

HOW RATES MOVE:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up.

RATES CURRENTLY TRENDING: NEUTRAL

Mortgage rates are trending slightly sideways so far today.  Last week the MBS market improved by +13bps.  This may've been enough to slightly improve mortgage rates or fees.  Rates experienced low volatility throughout most of the week.

THIS WEEK'S RATE FORECAST: NEUTRAL

Three Things: These are the three areas that have the greatest ability to impact mortgage rates this week. 1) China Trade, 2) Government Shutdown and 3)Inflation.

1) China Trade: This week, trade talks accelerate with China. U.S. and Chinese officials will continue trade talks this week with a focus on intellectual property which has been the major hurdle so far. Meetings will be held each day this week with higher level discussions happening on Thursday and Friday. There will continue to be a swirl of news reports on the progress on these talks. The more positive these talks appear to be, the worse it will be for your rates as a new deal will remove a considerable global economic uncertainty as well as kick start trade and growth.

2) Government Shutdown 2.0: Congressional lawmakers continue to struggle to find common ground to avoid another government shutdown. They have until Friday to get a deal done, but it appears that the markets are pricing in that we won't get a deal done by then and it could go on a little longer.

3) Inflation: We get both PPI and CPI this week. The focus will be on Wednesday Consumer Price Index YOY number which came in at 2.2% last time and is expected to remain above 2.0% with a 2.1% reading. Any reading above 2.3% will be negative for rates, any reading in the 1.9% range or below will be very good for rates. We also get some important economic readings with retail sales being the second most significant release of the week.

Fed: We will hear from a few members of the Federal Reserve this week.

02/12 Esther George, Loretta Mester

02/13 Raphael Bostic, Atlanta Fed Business Inflation Expectations

THIS WEEK'S POTENTIAL VOLATILITY: AVERAGE

Mortgage rates continue to trade at lower levels given all of the uncertainty in the markets. Look for the same this week. However, if we avoid a shutdown or make significant progress on China trade talks, rates could push higher.

BOTTOM LINE:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.