Wednesday, May 18, 2022


Updated on May 18, 2022 10:04:00 AM EDT

Fed Chairman Powell’s speaking engagement yesterday afternoon did give us a couple of relevant tidbits, but one particularly caused a negative reaction in bonds. He indicated that there was broad support for .500 increases to key short-term interest rates at the next two FOMC meetings. He noted that there is concern about the impact the Russia/Ukraine war and China covid shutdown will have on the global economy. However, the markets took his words to mean there is a high probability of seeing the half point moves mid-June and late July. As a sign the Fed is worried about strong inflation, bonds started selling and some lenders revised rates higher before closing.

April’s Housing Starts report was posted at 8:30 AM ET, revealing a 0.2% decline in new home groundbreakings. Analysts were expecting to see a larger percentage decline, but sizable downward revisions to March’s starts are skewing the numbers a bit. A secondary reading that tracks newly issued permits and is an indicator for future groundbreaking fell 3.2% last month. These numbers allow us to consider the data slightly favorable for bonds and mortgage pricing.

We also have a 20-year Treasury Bond auction taking place today that may affect rates this afternoon. As with the other auctions, a strong demand from investors could lead to lower bond yields and a slight improvement to mortgage pricing early this afternoon. A lackluster interest may lead to an upward change in rates.

Last week’s unemployment figures will be posted at 8:30 AM ET tomorrow. They are expected to show 200,000 new claims for benefits were filed during the week. A higher number would be considered good news for rates, but this is only a weekly snapshot that is not very influential nowadays. This means we will need to see a significant variance from forecasts for the report to affect rates.

Aprils Leading Economic Indicators (LEI) report is set to be posted at 10:00 AM ET tomorrow. This Conference Board report attempts to predict economic activity over the next three to six months. It is expected to show no change from Marchs reading, meaning that the indicators are predicting economic activity is likely to stall during the summer months. A decline would be considered good news for bonds and mortgage rates.

The week’s final report will also come late tomorrow morning when Aprils Existing Home Sales data from the National Association of Realtors is posted. The data will give us a measurement of housing sector strength by tracking resales of existing homes in the U.S. Housing data is relevant because a weakening housing sector makes broader economic growth less likely. Current forecasts are calling for a drop in sales last month, pointing at a softening housing sector. Good news for rates would be a large decline in sales.

 ©Mortgage Commentary 2022