This Week Rate Markets Will Focus On China And US Jobs Numbers

February 4, 2020

THIS WEEK’S MORTGAGE RATE SUMMARY

HOW RATES MOVE:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up.

RATES CURRENTLY TRENDING: NEUTRAL

Mortgage rates are trending sideways to slightly higher this morning. Last week the MBS market improved by +25bps. This was enough to move rates very slightly lower last week. We saw a bit of rate volatility last week.

THIS WEEK’S RATE FORECAST: NEUTRAL

Three Things: These are the three areas that have the greatest ability to move rates this week. 1) China, 2) Geopolitical, and 3) Jobs.

1) China: This will continue to be the dominant force in the market place. Today would have normally marked the return to work for millions of Chinese workers as their New Year celebrations and vacations are over. But instead, the country is shuttered with ports and factories closed. We get key economic readings from China (Manufacturing and Services PMIs), which were expected to start to improve now that the phase I trade deal is complete. However, those readings will be largely ignored as the Coronavirus continues to escalate at an exponential rate. As the Chinese financial markets opened this week, short-selling was prohibited, but the markets still collapsed on selling in general. The People’s Bank of China has already stepped in with emergency action by injecting 1.2 trillion yuan of liquidity and cut its reverse repo rates by 10 basis points.

2) Geopolitical: Brexit happened Friday, and the markets are looking to see how things unfold. The US has already pledged a better trade deal with Great Britain than what they had via the Eurozone Trade deal with the US to help jump-start Great Britain’s economy. Meanwhile, here in the US, all eyes are on the Senate’s Impeachment Trial. Iowa’s primary for the Democratic candidates will also garner plenty of attention.

3) Jobs: We get a massive amount of jobs/wage-related data this week. ADP Private Payrolls, Weekly Jobless Claims, Challenger Job Cuts, Unit Labor Costs, Non-Farm Payrolls, Average Hourly Earnings, and the Unemployment Rate. We also get key employment data points as internal readings in ISM Manufacturing and Services.

Fed: Here is this week’s speaking schedule for key Central Bank Figures:

02/03 Raphael Bostic
02/05 ECB President Lagarde, Lael Brainard
02/06 Robert Kaplan, Fed Balance Sheet
02/07 Randal Quarles

THIS WEEK’S POTENTIAL VOLATILITY: AVERAGE

Rates have been pushed slightly lower from increase concern over the coronavirus. This week will likely be the same. However, we get a lot of economic data denoted above that can move rates and increase volatility throughout the week.

BOTTOM LINE:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Source: TBWS