Mortgage rates flat ahead of Fed policy statement

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Published Date 7/24/2017

Generally quiet opening this morning ahead of a lot of key data and the FOMC meeting this week. Also, this week Treasury will auction $88B of 2s, 5s and 7s.

Not only the FOMC, but a number of key data points and Treasury auctions; last week there was much. This week, it's loaded with potential market movers (full calendar below). Last week, interest rates declined and MBS prices increased; the 10 -8 bps back to 2.24%; MBS prices last week +41 bps, most of it last Tuesday. The three key stock indexes didn’t change much: the DJIA -58, NASDAQ +176, S&P +14.

There is a meeting in Russia today, with oil producers still trying to find a way to increase prices. Oil producing states, including Russia, get most of their income from oil and can’t get prices back up to the lofty outlooks six months ago, when most every oil gurus were talking $60+/barrel. Crude oil is trading higher this morning.

More Russia/Trump team news: Jared Kushner, Trump's son-in-law, admitted to meeting with Russians four times during the campaign, but none had impact on the elections. “I did not collude, nor know of anyone else in the campaign who colluded, with any foreign government,” Mr. Kushner said in written testimony released on Monday ahead of a Capitol Hill appearance. “I had no improper contacts. I have not relied on Russian funds to finance my business activities in the private sector.”

The only data today: June existing home sales at 10:00 am EDT, expected at 5.56 mil from 5.62 mil, -1.2%; sales as reported 5.52 mil down 1.8%. Although a little weaker, still generally in line with forecasts. Sales, though, still slow: yr./yr. sales +0.7%, in May yr./yr. sales were +2.7%. 1st time buyers 32% down from 40% in May; inventories down 7.1% yr./yr. Compared to sales, prices are rich with the median of $263,800 up 6.5% from a year ago. Another negative for sales is supply, which fell 0.5% in the month to 1.96 million for a one-year decline of 7.1%. Relative to sales, supply is at 4.3 months vs 4.2 months in May.

There is little likelihood that the bond and mortgage markets will have much movement now until the FOMC policy statement is released at 2:00 pm EDT Wednesday. Always an important release, the policy statement this time will be especially interesting, with markets currently expecting the Fed will begin reducing its balance sheet beginning at the September meeting, but will not increase the Federal Funds rate until at least the December meeting, and that is now being questioned after last week’s BofJ and ECB taking a more cautious view of their economies. Central banks, including our Fed, continue to miss on their inflation forecasts. In the US, politicians doing their usual muttering with little accomplished; although they still talk the talk with tax cuts, infrastructure spending, and now Trump with his Wall comments. Trump was going to get Mexico to pay for it, a highly unlikely outcome. Now he tweets he will build it THEN get Mexico to pay for it.

This Week’s Calendar:

Monday

10:00 am June existing home sales (expected -1.2% to 5.56 mil; as reported

Tuesday

9:00 am May FHFA housing price index (+0.6% from Apr)
- May Case/Shiller 20 city home price index (yr./yr. 5.8% up from 5.7% in Apr)
10:00 am July Consumer Confidence Index (117 from 118.9 in June) FOMC meeting begins
1:00 pm $26B 2 yr. note auction

Wednesday

7:00 am weekly MBA mortgage applications
10:00 am June new home sales (612K from 610K, +0.4%)
1:00 pm $34B 5 yr. note auction
2:00 pm FOMC policy statement (no press conference)

Thursday

8:30 am June durable goods orders (+3.2%, ex transportation orders +0.4%; both better than in May)
- Weekly Claims (+7K to 240K; previous week claims were down 15K)
- June US trade deficit (-$65.0B)
1:00 pm $28B 7 yr. note auction

Friday

8:30 am Q2 advance GDP (+2.6% from 1.4% in Q1; deflator 1.2% down from 1.9% in Q1)
- Q2 employment cost index (+0.6%, down from 0.8% in Q1)
10:00 am Final U. of Michigan July consumer sentiment index (93.1 unchanged from mid-month)

Source: TBWS

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