Daily Rate Lock Advisory

Indexes Affecting Rate Lock

High

Negative

Producer Price Index (PPI)

July's Producer Price Index (PPI) was one of today’s two early morning releases. It showed inflation at the wholesale level of the economy was much hotter than expected, both last month and year over year. July’s overall PPI jumped 0.9% for its biggest increase in three years, as did the more important core data that excludes volatile food and energy costs when both were expected to rise only 0.2%. The overall reading came in at a 3.3% annual pace, exceeding forecasts of 2.6% and June’s 2.3% by a wide margin. Core data rose year over year at a 3.7% rate, again well above predictions of 2.9% and a sizable increase from June’s 2.6%.

High

Negative

Inflation News

There is literally not a single reading in the data that we can label as neutral for mortgage rates, let alone favorable. Today’s data makes it clear that tariffs are indeed affecting prices and are likely to trickle down into consumer level inflation soon. Another important note is that the CPI and PPI both heavily contribute to forming the PCE indexes that we will get at the end of the month. This is relevant because the PCE indexes are the Fed’s preferred inflation gauges. If they drive the PCE uncomfortably higher, the Fed may need to delay making a rate cut at next month’s FOMC meeting, especially if August’s Employment report that comes before the meeting shows solid gains.

High

Unknown

None

As mentioned in yesterday’s update, we were quite concerned about what today’s inflation report was going to show. While the bond market appears to be handling the news relatively well, the report actually erased noticeable gains from overnight trading. Out of fear of what upcoming inflation reports will reveal, we are holding the recommendation of proceeding cautiously with rates as it seems like there is more risk of them moving higher than improving in the near future.

Medium

Negative

Weekly Unemployment Claims (every Thursday)

Also released early this morning was last week’s unemployment update that showed 224,000 new claims for unemployment benefits were filed during the week. This was a tad lower than the 228,000 that was expected and a decline from the previous week’s revised 227,000 initial jobless claims. Declining claims are a sign of strength in the employment sector, making the data bad news for mortgage rates.

High

Unknown

Retail Sales

Tomorrow brings us another major economic report with the release of July’s Retail Sales data at 8:30 AM ET. This report tracks consumer spending that makes up over two-thirds of the U.S. economy. If consumers are continuing to spend, the broader economy is likely to grow. On the other hand, if consumers are delaying making large purchases, the economy is likely to weaken. Bonds tend to thrive in weaker economic conditions, leading to lower mortgage rates. Good news for rates would be a much smaller increase in sales than the 0.5% that is expected.

Medium

Unknown

Industrial Production

Also set for release tomorrow morning is July's Industrial Production report that measures output at U.S. factories, mines and utilities. The 9:15 AM ET release is expected to show no change from June's level. A large decline would be considered good news for bonds and mortgage rates because it would signal manufacturing sector weakness. Broader economic growth is much more difficult when manufacturing activity is slipping.

Medium

Unknown

Univ of Mich Consumer Sentiment (Prelim)

The last release of the week will come from the University of Michigan at 10:00 AM ET. Their Index of Consumer Sentiment for August will give us an indication of consumer confidence that projects consumer willingness to spend. If consumer confidence in their own financial and employment situations is rising, they are more apt to make large purchases in the near future. On the other hand, if they are growing more concerned about their job security or finances, they probably will delay making that large purchase. This influences future consumer spending data and therefore, impacts the financial markets. It is expected to show a reading of 62.2 that would mean confidence is a little stronger this month than July's level of 61.7. Good news for mortgage rates would be a sizable decline.

Rate Lock Advisory

Mortgage Rate Trend

Indexes Affecting Rate Lock

Producer Price Index (PPI)

Inflation News

None

Weekly Unemployment Claims (every Thursday)

Retail Sales

Industrial Production

Univ of Mich Consumer Sentiment (Prelim)

Float / Lock Recommendation