Here’s a true fact for you: when you write about mortgage rates every day, you will inevitably run into days where there is very little to say. This is one of those days. Overnight Treasuries rallied on the basis of another weak manufacturing report out of China. The yield on 10-year Treasuries dipped as low as 2.12%, but has subsequently come back to the 2.16% range, which is pretty much where we were yesterday. For all intents and purposes, mortgage rates have changed very little since Friday. There is no particularly significant domestic economic data today, so the main influences on mortgage rates today will be the same as they have been all week – the potential need for bond market concessions as a result of corporate and government bond issuance.
Today’s economic data:
There are some bond auctions today, and not a whole lot else. The 5-year auction this afternoon could Dennis Lockhart of the Atlanta Fed speaks this afternoon, but he also spoke on Monday and Tuesday, so I doubt anything new will come out of this speech. Just so you know, his previous speeches this week have indicated that he is in favor of a rate hike before the end of the year. I wrote about this at greater length yesterday. I cannot bring myself to rehash it more today.
A little bit about China:
Why not? There’s not much else to discuss. Last night the preliminary reading on the Caixin Manufacturing Purchasing Manager’s Index for September (that’s a mouthful) fell to the lowest reading in 6 1/2 years. The reading came in at 47 compared to expectations of 47.5. This PMI measure has been in contractionary territory since February. The Chinese economy has been the engine that has spurred global growth (or prevented an even worse recession) for some time now, and its slowing has contributed to recent global economic turmoil. There is some speculation that the Chinese government will have to take more steps to stimulate growth to halt further declines.
This is all worth noting because in addition to impacting the day-to-day movement of the markets, it is clearly weighing on the Fed, who specifically cited “recent global economic and financial developments” as one of the reasons they did not move to hike rates this month. Slow growth in China leads to declines in commodity prices (among other things) and will have a disinflationary effect on the U.S. economy. Inflation is already well below Fed targets, and if it falls further, we could see the Fed punt a rate hike into 2016. I don’t think they will do this, but it’s in the realm of possibility.
Will the government shutdown (again)?:
Without a budget deal, the government will shutdown on October 1st, which is fast approaching. Right now the Senate is trying to pass a short-term spending bill that would fund the government through December 11. But check this out (from today’s Washington Post):
“The measure will almost certainly fail when it comes up for a procedural vote on Thursday as Democrats are expected to object to both the defense funding increase and the effort to strip funds from the embattled women’s health organization. But the gambit is just the first in a set of delicate moves by Majority Leader Mitch McConnell (R-Ky.) aimed at averting an Oct. 1 shutdown.
Once the bill fails, GOP leaders are expected to immediately introduce a second spending bill funding the government at current spending levels through the same date, according to several senior Senate aides. That bill — which is being called a “clean continuing resolution” or “clean CR” because of its lack of policy riders — is expected to pass.”
And if you’re thinking to yourself, “hey, this is asinine, why not just propose the clean CR up front?” you’d be thinking correctly. Somehow proposing a measure – that is bound to fail – is supposed to appease House Republicans who are hell-bent on defunding Planned Parenthood. Maybe it allows them to score political points? I don’t get it either.
In any case, our lawmakers have seven days to figure this out.
What about mortgage rates?:
Mortgage rates have been remarkably stable since the beginning of August, and barring something unforeseen happening*, I think they will stay around the current range until the Fed decides to raise rates, or strongly indicates that a rate increase is coming. I believe that a rate hike is most likely at the December meeting – I think they are bent on raising rates before the end of the year. Then again, I thought forever that they were going to hike in September, and that didn’t happen, so maybe take this with a grain of salt.
In any case, I could see a situation where the Fed signals that they are going to hike in December as early as the October FOMC meeting, which would cause rates to rise. Whenever the expectation that a rate hike is coming sets into the market, we’ll see rates rise. This will likely occur at some point before the Fed announces the actual hike. And therein lies the rub – it’s tough to predict when that expectation will set in. I’ve been beating the same drum for so long it’s worn out, but I believe that rates will be higher at the end of the year than they are now. As a result, I would advise someone who is looking for a mortgage to try to act sooner rather than later.
*This really is the ultimate hedge for people making predictions.
And now for something completely different:
A little fun fact I learned today: Japan’s financial markets are closed for the Autumn Equinox. In Japan, Autumn Equinox Day is a public holiday. It is now a secular holiday, which was a post-war change made to separate church and state. Traditionally, it was a Shinto holiday called Kōreisai, which was a day to pay respect to past Emperors. The Vernal Equinox is also a holiday in Japan. As someone who is 100% in favor of more federal holidays, I’d like to see us adopt one or both of these holidays in the United States