Updated on June 26, 2019 10:15:42 AM EDT
Yesterday’s afternoon event with Fed Chairman Powell did more harm than good for mortgage rates. While he did not say anything that was a significant surprise, he also did not give a clear signal that a Fed rate cut is coming soon. The markets were anticipating a direct assurance that one is needed. He indicated that it was a possibility based on current and future conditions but was not as clear as market participants were hoping. That led to some pressure in bonds during afternoon trading yesterday. Fortunately, it was not enough of a move to cause an intraday rate change and bonds were able to recover some of the knee-jerk reaction before the end of the day.
This morning’s sole economic report was Mays Durable Goods Orders at 8:30 AM ET. The Commerce Department announced a 1.3% decline in new orders of products such as airplanes, appliances and electronics. That was a larger decline than expected, making the headline number good news for bonds and mortgage rates. However, a secondary reading that excludes more volatile and costly transportation-related orders came in stronger than expected. Because this is considered to be a fairly highly important report, it has had a negative impact on trading this morning.
We also have the first of this week’s two Treasury auctions that have the potential to influence mortgage rates. 5-year Treasury Notes will be sold today, followed by 7-year Notes tomorrow. These sales can possibly impact broader bond trading enough to affect mortgage rates if they show strong or weak investor demand. If the sales are met with a strong demand, we could see bond prices rise during afternoon trading today and/or tomorrow. This could lead to an afternoon improvement to mortgage rates. On the other hand, if the sales draw a lackluster interest from investors, mortgage rates may move slightly higher.
In addition to the weekly unemployment update, tomorrow brings us the second revision to the 1st Quarter Gross Domestic Product (GDP) reading. The GDP is the sum of all products and services produced in the U.S. and is considered to be the best measurement of economic growth or contraction. However, this particular data is quite aged now (covers January through March) and will likely have little impact on the bond market or mortgage pricing unless it varies greatly from previous readings. Market participants are looking more towards next months release of the current quarters initial GDP reading. Last months first revision showed a 3.1% annual rate of growth. Tomorrow’s update is expected to show the same. A larger increase in the GDP would be considered negative for rates as it means stronger economic activity.
©Mortgage Commentary 2019