Encompass Lending Group - Desiree Simpson

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The Federal Reserve does not set the interest rates mortgage borrowers pay directly, but its actions influence them.

"Mortgage rates rise again after Fed says it will take 'forceful' steps to curb inflation"

Mortgage rates rise again after Fed says it will take 'forceful' steps to curb inflation Mortgage rates continued to climb this week following comments by Federal Reserve Chairman Jerome Powell that the central bank is taking "forceful and rapid" steps to reduce inflation and slow the economy.

Friday…

Stocks have ended the day sharply lower. The Dow closed -337.98 @ 31,318.44 and the S&P 500 closed -42.59 @ 3,924.26. Mortgage Bonds are sharply higher on the day.

Economic Data

The Bureau of Labor Statistics (BLS) reported that 315,000 jobs created in August, which was above expectations of 300,000. There was also 107,000 in negative revisions to June and July.

The Unemployment Rate increased from 3.5% to 3.7%, which was higher than expectations of 3.5%. The unemployment rate comes from the household survey, which has its own job creations component. This report showed 442,000 job creations, while the labor force increased by 786,000. For those reasons, the unemployment rate increased, but again, partially due to the increase in the labor force.

The labor participation rate increased 0.3% to 62.4%

The real unemployment rate is higher than 3.7%, but the U-3 is what everyone looks at, and removes individuals who are not actively searching for a job – There are around 6 million people that are not being counted that “want a job” but have looked in the last four weeks.

The U-6 all-in unemployment rate, which adds back all these individuals, increased to 7.0%.

Average hourly earnings were up 0.3% in August and are up 5.2% year over year. Average weekly earnings were unchanged from the previous month and are up 4.6% year over year.

Technical Picture

Mortgage Bonds have moved sharply higher off of support at 99.0 following a favorable BLS Jobs Report. The 10-Year has fallen below the pivotal 3.25% level and is currently trading at around 3.20%

Friday…
Stocks have ended the day sharply higher. The Dow closed +658.09 and the S & P 500 closed +72.78 @ 3,863.16. Mortgage Bonds are also sharply higher on the day.

Economic Data
Retail sales rose 1% in June, which was higher than estimates of 0.8%. Core retail sales rose 0.8%, which was 0.5% better than expectations, but there was a negative 0.3% revision to the previous month. Because of the increases within this report, it is likely Q2 GDP estimates get a slight revision higher, but still remain negative.

Because of the 9.1% red hot inflation reading, and somewhat resilient retail sales figure, Fed Governor Waller said that he would consider supporting a larger rate hike July 27th, which would mean 100bps.

After negative prints seen in 3 out of the prior 4 months, the July NY manufacturing index rebounded to +11.1 and that was well better than the estimate of -2.0. While the headline number was an upside surprise, the disappointment was the 6-month outlook falling to -6.2 from +14 and that is the worst print since September 2001. Capital spending plans, both on equipment and tech spending deteriorated, and the outlook for new orders fell to zero from 13.5.

Upcoming Events
Next week is full of important housing data. The MBS Highway housing report will be released, as well as the NAHB Housing Market Index, Housing Starts and Permits, and Existing Home Sales.

Technical Picture
Mortgage Bonds have broken above overhead resistance at the 25-day Moving Average, with the next ceiling roughly 45bps higher @ 100.603. The 10-year is trading at around 2.93% in a wide range between the 50-day Moving Average and support @ 2.78%