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Daily Market Watch for Tuesday, September 25, 2018 (Courtesy of Larry Baer and Market Alert )
Short Term Trend (5 days or less): Favors steady rates and fractionally lower prices.
Long Term Trend (6 days or more): Favors steady rates and fractionally lower prices.

Different day … same story.

Fed Chairman Powell and his fellow central bankers are widely expected to bump their short-term benchmark interest rates 25 basis points higher for the third time this year on Wednesday afternoon. The rate hike is broadly anticipated and therefore should have little if any noticeable impact on the current trend trajectory of mortgage interest rates.

The most important part of the coming Fed meeting will be what committee members have to say about where short-term interest rates will go in the future. The trade war between the US and China has added speculation the Fed will choose to be more aggressive with future rate hikes to fend off the inflation threats the trade conflict creates.

In their post minute statement, expected to be issued at 2:00 PM Wednesday afternoon, committee members will give their first projections for growth, inflation and target interest rates all way out to 2021. Most expect these forecasts will show central bankers anticipating slowing economic growth and modest inflationary pressures ahead. As I write, mortgage investors have penciled in 325 basis point rate hikes from the Fed in 2019.

You can “take-it-to-the-bank” any expression of concerns about the prospect of accelerating inflation pressures by central bankers will result in an upward surge for mortgage interest rates. Such an outcome is not expected -- but stranger things have happened before. As always, I'll provide you with an update as soon as possible following the release of the Fed’s post minute statement.

The Federal Open Market Committee meeting will conclude at 2:00 PM ET on tomorrow afternoon and Fed Chairman Powell’s press conference will follow at 2:30 PM ET.

It is worth noting Uncle Sam will be in the credit markets conducting a three-part three-day auction series this week.

Yesterday’s sale of $37 billion worth of two-year Treasury notes met good demand. Credit market investors appetites will be tested today when $38 million of five-year notes go on the block. That auction will conclude at 1:00 PM ET. The borrowing spree will wrap up on Thursday when the final gavel falls on $31 billion of seven-year notes.

The yield on these two remaining debt instruments has climbed to levels that should make them very attractive to domestic and foreign investors alike. If so, this auction series will have little if any noticeable impact on the direction of mortgage interest rates this week.

In terms of economic news -- August New Home Sales numbers will be released at 10:00 AM ET on tomorrow. The consensus expectation among economists is calling for a month over month gain of 0.4%. Mortgage investors will likely show little reaction to this news.

Thursday brings the August Durable Goods Orders report at 8:30 AM ET together with a final estimate of Q2 Gross Domestic Product. Both reports are expected to show modest gains -- with Q2 GDP stealing the limelight with a revision to 4.5% from the prior estimate of 4.2%. The press will likely make a “big thing” out of the stronger GDP number, but most mortgage investors have already priced it into their rate sheets, so the data will likely come and go without creating much of a stir.

The week will round out with Friday’s 8:30 AM release of the Personal Income, Spending and Personal Consumption Expenditure Index figures. Incomes and spending are projected to post another solid month but the more important “core” PCE Index is expected to edge fractionally lower from July’s 0.2% level to 0.1% in August. If this forecast is met, the modest retreat in inflation pressure at the consumer level should prove supportive of steady to perhaps fractionally lower mortgage interest rates.

My TrueCast price and timing models are flashing an increasing number of signals suggesting the S&P 500 and the Dow Jones Industrial Index are very vulnerable to a noticeable increase in selling pressure. I look for that pressure to be most intense over the course of the next two weeks. If this assessment proves accurate, it is highly likely the well-worn path of capital fleeing the stock markets for the relative safety of Treasury debt obligations and agency eligible mortgage-backed securities will see a dramatic increase in investor foot traffic.

Trees don’t grow to the sky, and prices don’t fall into a bottomless abyss. My models are suggesting a trend change favoring steady to fractionally lower rates and higher prices has a nine-out-of-10 chance of manifesting between now and the week of October 1st. This is not an invitation to increase your pipeline risk positions – this is simply a projection of when the current price retreat will likely run out of momentum.

Be patient … be disciplined … and wait for price action to sound the all-clear signal before ramping up pipeline risk.
Rates Last Updated 9/25/18, 9:45 AM CST 
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  *Rates and terms are subject to change at any time and certain variations, restrictions, or improvements may apply based on creditworthiness, loan amount, property type, etc. APR's do not include mortgage insurance which may be required for LTVs greater than 80%, or closing costs from undetermined third parties including the title company.
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Contact Information
Houston:Jim Norris (RMLO #304627)
12010 Miramar Shores Dr
Houston, Tx 77065
(281) 970-1082 ext 1
(866) 717-4556 ext 1
Houston:Ellen Roloff Norris (RMLO #304630)
12010 Miramar Shores Dr
Houston, TX 77065
281-970-1082 ext 2
866-717-4556 ext 2
Brenham:Gayle Valentine-Hill (RMLO #298234)
Brenham:Sandra Starnes (RMLO #298126)
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