Thursday, October 17, 2019


Updated on October 17, 2019 10:29:14 AM EDT

Yesterday afternoon’s Fed Beige Book release was a non-factor for mortgage rates. It showed that the economy is slowing but still growing at a modest pace. Comments in the report refenced the trade war with China as a contributing factor to the slower growth and noted that manufacturers were starting layoffs in some regions. None of that was a surprise to the markets though, preventing much of a reaction once the report was posted.

The first of this morning’s two monthly economic reports was Septembers Housing Starts at 8:30 AM ET. The Commerce Department announced a 9.4% decline in new home groundbreakings, falling short of expectations. While the headline numbers appear to be good news for mortgage rates, the details in the data are not so much. This is because the decline is being attributed mostly to multi-family housing starts such as apartment buildings. New starts of single-family homes that are more relevant to mortgage rates actually rose last month. That forces us to consider the data negative news for rates.

Septembers Industrial Production data was released at 9:15 AM ET, revealing a 0.4% decline in output at U.S. factories, mines and utilities. This was a larger decline than expected, giving us another sign of manufacturing sector weakness. That makes the report good news for bonds and mortgage rates.

What is affecting bonds more than this data is the possible Brexit deal. It was widely believed that if Britain broke away from the EU without trade and other deals in place, it would be more disruptive to the global economy. What is bad for the economy is generally good news for bonds and mortgage pricing. Therefore, news of a smoother Brexit is being taken as unfavorable for bonds this morning. Fortunately, the response is somewhat modest so far.

Tomorrow has a single fairly minor piece of data for the markets to digest with the release of Septembers Leading Economic Indicators (LEI) at 10:00 AM ET. This Conference Board index attempts to predict future economic activity, particularly during the next three to six months. Current forecasts are calling for an increase of 0.1% from Augusts reading. This would indicate that economic activity is likely to remain fairly calm over the next couple of months. A small increase would not be of much concern to the bond and mortgage market. A large decline would be favorable to mortgage pricing.

 ©Mortgage Commentary 2019