Bulls & Blogs

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By G. Steven Bray

Starting this holiday week, we find mortgage rates still hanging out in the same range they’ve held since the first part of Oct, albeit at the lower end of that range thanks to “flight to safety” market action last week. And it’s that action that possibly could deliver an early Christmas present of lower rates in the upcoming weeks.

First, let’s get through this week. Holiday weeks like this tend to produce limited overall rate movement because few traders are tuned in. In the odd case that remaining traders push rates higher or lower, the market probably will self-correct next week absent some unexpected headline. My conclusion is if you aren’t risk averse, odds are you’ll see similar rates next week given the current market sentiment.

Looking out a little further, we have the most positive outlook for lower rates that we’ve had since summer. While the US economy still looks incredibly strong, global conditions aren’t quite as rosy. Economists are starting to sound alarm bells about slowing global growth. On top of that, recent headlines about Brexit, the Italian budget drama, and emerging market difficulties are like wind gusts embedded in an increasing headwind.

Traders mostly had been ignoring these negative factor given the prospects for rising US inflation, increased government borrowing, and the Federal Reserve’s apparent rate hike plan, all of which support higher rates. However, last week’s inflation report showed inflation remains tame. Friday, the Fed’s Vice Chair acknowledged the potential effects of slowing global growth on the US economy, which made traders question the rate hike plan.

Overall, I think momentum favors slightly lower rates, but if you’re going to float your rate, be cautious. The US economy is still a powerhouse, and I’m not convinced yet we’ve seen the highest rates of this cycle.

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

By G. Steven Bray

A funny thing happened on the way to higher interest rates.

The sell-off in the equities market last week put a pause on rising interest rates as all of that cash from stock sales needed somewhere to go, and some of it found its way into the bond market. The pause was a welcome respite, but it still leaves mortgage rates near 7-year highs. But with all the turmoil in equities, the question is why aren’t rate doing better?

Market sentiment of late seems to have focused on two things: continued strength in the US economy and continued monetary tightening from the Federal Reserve. Both support higher interest rates, and with rising inflation metrics this summer, most investors were betting rates would move even higher.

But this week, the punch wore off, and investors realized higher rates might dampen US economic growth. At least, that’s what the talking heads said. Personally, I’m not convinced it was just higher rates that caused the market turmoil. Investors have been piling on the side of higher rates for months now, and with the relaxation of global uncertainties last month, I think investors grew complacent about the risks to the global economy. But the world is still a scary place. Some of those uncertainties have reared their heads again, which balanced the scales – at least momentarily.

This coming week is a big one for US economic data. Strong data could stoke rates higher again. The inflation scare from this summer has subsided a bit, but I suspect all eyes will be on this Friday’s jobs report, especially the wage component. Unless we get a big surprise earlier in the week, I’m betting markets will keep rates in a narrow range waiting for Friday.

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

By G. Steven Bray

With summer behind us, things could get more interesting for interest rates. That may result in more volatility than we saw during the summer, but the same forces that were at work then remain relevant now.

Inflation remains enemy number one of those who want low interest rates. We’ve talked the last few months about how consumer inflation seems to be inching higher, but wage inflation has remained mostly contained. Well, that changed with last week’s jobs report. Average hourly earnings broke through an important ceiling, and rates quickly responded by moving higher. More importantly, total wages, which factors in hours worked, are up 5.1% in the past year. That provides a lot of extra juice for the economy.

Interestingly, earnings for workers in the bottom 10% based on income saw earnings grow 3.9% whereas the top 10% saw only 1.2% growth. That’s positive for the economy because lower income workers are more likely to spend their extra earnings.

Now, the question is will these extra earnings translate into extra consumer demand leading to higher consumer prices. We may get an answer this Thurs through the release of the Consumer Price Index. As we’ve discussed before, the CPI is the granddaddy of inflation measures. The core rate has been rising slowly all year and currently exceeds 2%, the Fed’s supposed target rate. It’s a good bet if Thursday’s reading shows another rise, it will give markets a jolt.

Markets also may be watching the European Central Bank meeting this week. European economic growth has been positive, but not all that and a bag of chips. Rumors are the ECB may downgrade its future growth estimates. That may result in some flight-to-safety bond buying, which could help keep US rates contained.

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

By G. Steven Bray

Other than the short tantrum mortgage rates performed a couple weeks ago, the market has been in a summer slumber. And even that tantrum didn’t take rates out of the range they’ve inhabited the last few months. This week’s economic headliner could change that, but I doubt it.

Friday brings the release of the all-important Consumer Price Index (CPI), the granddaddy of inflation measures. Wholesale inflation, wage inflation, and oil prices all ticked higher earlier this year, and many analysts expected consumer inflation would follow in short order. We got a hint in that direction a couple months ago, which brought markets to attention.

However, since then, these other inflation measures have relaxed again. Wholesale inflation, released yesterday, and wage inflation, as indicated by the big jobs report last week, were flat. Oil prices, too, have flattened, and the Personal Consumption Expenditures Index, the broader inflation measure favored by the Fed, slipped back below 2%.

So, all eyes are on the CPI tomorrow. Given the weakening of the other measures, a reading that moves the index higher could make rates jump again. Unfortunately, a moderate reading probably won’t lead to much lower rates but will instead just let rates continue to slumber in their current range.