Houston's Rate Sheet

Rate Watch

Through last week, mortgage rates continued to fall in response to the previous week’s GDP release. In response, Freddie Mac’s weekly survey average on the benchmark 30-year fixed rate mortgage fell 9 basis points to 6.63 percent. Other products moved in a similar direction. The average for the 15-year FRM fell to 6.27 percent, down from last week's average of 6.34 percent and one-year Treasury-indexed ARMs averaged 5.69 percent, down from last week when it averaged 5.78 percent. This was the second consecutive week Freddie Mac reported declining mortgage rates.

Freddie Mac’s survey, which is released on Thursday, did not reflect the big news of the week. That news came on Friday afternoon with the release of the Employment Report. Since, the health of the labor market is perhaps the single biggest factor in the performance of the economy; the Employment report is the most closely watched economic data of the month. The US economy added just 113K new jobs in July. Although, higher than the 3-month average, it was well below the consensus forecast of 145K. The Unemployment Rate unexpectedly jumped to 4.8% from 4.6%, although this was mostly the result of new job seekers entering the labor pool rather than a shortage of jobs. With this weak Employment data, it becomes less likely that the Federal Reserve will continue their rate hiking spree. Upon hearing the news, Mortgage rates fell modestly.

The big story this week will be the Federal Reserve’s FOMC meeting on Tuesday. That afternoon, we will know if the Fed decided to raise interest rates. The Fed has been raising interest rates for over 2 years, so this is a very interesting time. The financial markets are only giving a 20% chance that the Fed will raise rates tomorrow. The decision and the accompanying could have a big impact on rates. It should prove to be an interesting day.

On the economic data front, Friday’s release of Retail Sales will be the most significant of the week. Consumers account for about 70% of economic activity, and this report is a major indicator of spending by consumers. The other key report of the week will be the Productivity report. Increases in productivity allow companies to create more output without adding more workers. In the long run, this is a major factor in our standard of living. The Trade Balance will come out on Thursday, but this information about the quantity of imports and exports mostly affects just the foreign exchange markets in the short term. Finally, there will be 10-yr and 30-yr Treasury auctions on Wednesday and Thursday respectively, and investors will be closely watching the level of buying by foreigners.

posted by Vincent Biondillo @ 4:39 PM