WEDNESDAY AFTERNOON UPDATE:
This week’s FOMC meeting has adjourned with no change to key short-term interest rates. That was widely expected from market participants. The post-meeting statement didn’t give us any significant surprises. Key points indicated that the labor market continues to improve as does the housing market and that inflation remains below their preferred rate of 2.0% annually.
The statement did little to affect predictions of when the Fed will make their first increase to key rates. Many still believe that it will come at either the next FOMC meeting in mid-September or the late October meeting. The markets aren’t far off from their earlier levels with stocks and bonds showing slight improvement. The Dow is currently up 110 points while the Nasdaq is up 19 points. The bond market is now down only 3/32 (2.27%), which may be enough of a move for some lenders to improve rates by .125 of a discount point from this morning’s pricing. However, I suspect most lenders will wait for tomorrow’s major data before reflecting this change.
Today’s 5-year Treasury Note auction went fairly well with several benchmarks we use to gauge investor demand showing a decent level of interest. That helps us to be optimistic about tomorrow’s 7-year Note auction. Since its results will not be followed by a major event such as today’s FOMC meeting, a strong demand for that sale could lead to a slight afternoon improvement in rates tomorrow.
Tomorrow morning’s major data is the preliminary reading of the 2nd Quarter Gross Domestic Product (GDP) at 8:30 AM ET. This index is considered to be the benchmark indicator of economic growth or weakness. It is the total of all goods and services that are produced in the U.S. and usually has a great deal of influence on the financial markets. This reading is arguably the single most important report we get regularly. Current forecasts are estimating that the economy grew at a 2.5% annual rate during the second quarter, rebounding significantly from the first quarter’s 0.2% decline. A faster rate of growth should hurt bond prices, leading to higher mortgage rates. But a smaller than expected reading will likely fuel a bond market rally and push mortgage pricing lower since it would indicate the economy was not as strong as many had thought.
Also tomorrow morning will be last week’s unemployment figures. They are expected to show that 272,000 new claims for unemployment benefits were filed last week. This would be a good sized increase from the previous week’s 255,000, hinting at employment sector weakness. Since this report will be posted at the same time as the GDP and it is only a weekly snapshot, I would be surprised if it affected tomorrow’s mortgage rates.