Market Commentary


Updated on July 17, 2018 10:32:26 AM EDT

Today's only relevant economic data was June's Industrial Production data at 9:15 AM ET. It showed a 0.6% increase in output at U.S. factories, mines and utilities, slightly exceeding forecasts of a 0.5% increase. The larger than expected rise is technically bad news for bonds and mortgage rates. However, because this is only a moderately important report that showed a minimal variance, it has had little impact on today's mortgage pricing.

Fed Chairman Powell is speaking to the Senate Banking Committee this morning in his semi-annual congressional update on the status of the economy and monetary policy. His prepared statement did not reveal any major surprises but did reiterate that the recent strength in the employment sector and inflation can be sustained over the next several years. He also indicated that recent economic data points toward strong economic growth during the second quarter. His statement did little in addressing the number of rate hikes they expect to make this year, just mentioning that they expect to gradually raise rates. Overall, nothing of great significance so far.

This event will be repeated tomorrow before the House Financial Services Committee. We usually see the most movement in the markets and mortgage rates during the first day of this testimony. This is because the speaker's prepared words for both appearances are quite similar to each other, meaning that the second day of testimony rarely gives us anything we did not hear during the first day. The general exception is something asked or answered during the Q&A portion of the second day's appearance. With seeing little reaction to today's testimony, it appears we have little to be concerned about from tomorrow's session.

Besides day two of Fed Chairman Powell's testimony, we also have June's Housing Starts being released at 8:30 AM ET tomorrow morning. It will give us an indication of housing sector strength and future mortgage credit demand, but usually doesn't cause much movement in mortgage rates unless it varies greatly from forecasts. Tomorrow's release is expected to show a decline in construction starts of new homes last month. The lower the number of starts, the better the news it is for the bond market, as it would indicate a weaker than expected new home portion of the housing sector.

Also tomorrow, the Federal Reserve will release its Beige Book report at 2:00 PM ET. This report is named simply after the color of its cover, but it is considered to be important to the Fed when determining monetary policy during their FOMC meetings. It details economic activity and conditions by Fed region throughout the U.S. If there are any significant changes in conditions since the last update, we could see afternoon moves in the markets and mortgage rates. Signs of weakness should translate into bond strength and better mortgage rates.

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