Rate markets flat ahead of US-Canada trade deadline

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Published Date 8/30/2018

Today'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 moving sideways so far today. The MBS market worsened by -5 bps yesterday. This probably wasn't enough to worsen mortgage rates or fees. The rates experienced low volatility yesterday.

Today's Rate Forecast: Neutral

Jobs: Initial Weekly Jobless Claims came in close to expectations (213K vs est of 214K), the more closely watched 4-week moving average dropped to 212,250 which is an extremely low level.

PCE: The Fed's preferred measure of inflation hit a six-year high as the Core PCE number FINALLY hit 2.0% (the Fed's target rate). The Headline PCE number continues to trend above 2.0% with a 2.3% vs est of 2.2% level. Spending picked up by 0.4% on a MOM basis, and income grew by 0.3%, both matched market expectations.

Trade War: The EU trade chief Cecilia Malmström said they may be willing to end all tariffs on industrial goods (including automobiles) from the U.S. as part of a deal. Meanwhile, Canada is still in town, and both sides say they are "optimistic" about getting a deal done by Friday. But while these two scenarios appear to be gaining some traction, we see the opposite with China.

Germany: Unemployment Rate 5.2% vs est of 5.2%, CPI YOY 2.0% vs est of 2.0%.

Eurozone: Consumer Confidence -1.9 vs est of -1.9.

Canada: GDP 2nd QTR 2.9% vs est of 3.0%.

Today's Potential Rate Volatility: Average

Mortgage rates are moving sideways even with solid jobless claims and signs of inflation. Typically, this would push rates higher. The trade discussions with Canada are helping to keep a lid on rates. If we get an agreement today, we're likely to see rates and volatility go up.

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.

Source: TBWS

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