Stock Rally Pushes Rates Up
Investors large and small typically seek the relative safety of the bond market (including mortgage bonds) during times of uncertainty. Rates over the last month have benefited from this “flight to safety” of capital as stocks have been sold in favor of bonds. During the second half of September, stocks declined and mortgage rates improved. The trend reversed last week on renewed optimism in the resilient US economy. The Dow has climbed about 600 points over the past week, while mortgage rates have risen.
The Fed meeting minutes last week were a non-factor for rates. There were no major surprises in the Minutes from the September 17 Fed meeting released on Thursday. The Minutes revealed that Fed officials held off on a rate hike due to uncertainty that inflation will rise to their 2.0% target level and increased downside risk for economic growth in the U.S. since their last September 17 Fed meeting. Most investors are now projecting no rate hike until further into 2016.
Week Ahead
Factors: Retail Sales will be released on Wednesday. Retail Sales account for about 70% of economic activity. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Thursday.
Volatility: Moderate
Trend: Neutral
Check back weekly for the mortgage industry update.