The top news this week will be the market’s continued speculation on the timing and the number of Fed rate cuts this year. As of this morning, the markets are predicting a 71% chance of a Fed cut in their June meeting, up from just 55% last week. Some Fed officials are making public comments that they think the Fed will only do one or two cuts this year, compared to six months ago when the markets were predicting 3-6 cuts in 2024.
This will be a shortened market trading week with both the stock and bond markets in the U.S. closing early on Thursday and both will be closed all day on Friday for the Easter holiday weekend. The PCE inflation report for February will be released this Friday, even though the markets will be closed. If the core PCE report comes out higher than the market forecast of 2.8%, this would be very negative for the bond markets, pushing MBS prices down and pushing mortgage interest rates up.
This week will have a higher-than-normal probability of market price volatility due to the shortened market trading week. There will less daily trading this week, particularly on Wednesday and Thursday. Whenever trading liquidity is lower, meaning there are fewer buyers and sellers in the market at any point in time, market prices will move more quickly and in larger price amounts in response to good or bad news surprises. There is a higher-than-normal chance this week of having mid-day rate sheet changes.
Tomorrow we will see the February Durable Goods report, with the markets predicting a 1.1% increase, compared to the 6.2% decline in January. Also, the Consumer Confidence report for March will be released with the markets predicting a 107.0 index, up slightly from the 106.7 index in January. These will be the last material reports the markets see this week until the Thursday morning release of the Final reading of GDP for Q4 of last year predicted to come out at 3.2%, flat to the prior estimate. The University of Michigan Consumer Sentiment survey will be released with the markets predicting a 76.5 number, flat to the prior month. Also, Initial Jobless claims will come out at an estimated 212,000 new claims filed last week. The markets will then close at 11:00 am PT on Thursday.
So, the markets will see three key reports on Thursday which will have very light trading in the morning and then zero trading starting at 11:00 PT, and then be closed for four days until the next Monday. If any of these reports come out “hot” meaning they show the economy is stronger than the markets have predicted, and traders will have a very short time window to make any trades based upon this new information. This would push down MBS prices and push up mortgage rates. Any surprises in Thursday morning’s reports would drive large and fast price changes in either direction, simply due to the low levels of market trading activity on Thursday morning.
Shortened Holiday Trading Week. The U.S. stock and bond markets will be closing early on Thursday at 11:00 am PT and will be closed all day Friday for the Easter Holiday weekend. Many traders will not work at all on Thursday, and instead their back up traders will be working that shortened trading day, and they typically will be instructed to not make any major trading transactions. This means there will be much less trading activity this week in the U.S. bond markets which is called reduced trading “liquidity.” When a market is considered “liquid” this means that any point in time there are numerous willing buyers and sellers, so the selling price of any item reflects the true market’s value of that asset, based upon all currently known information.
Whenever a market has low levels of trading activity, larger than normal price swings will occur as the markets re-adjust their view of the fair market price of an asset in response to surprise good or bad news. These prices swings can go in either direction based upon how the surprise news impacts the value of any assets. In normal market conditions, good economic news surprises will usually push up stock prices and push down bond prices, as normally stock values go up and interest rates go up in a booming economy. In a normal market the opposite happens when bad economic news comes out.
Any surprise good economic news, which the markets sometimes call a “hot” reading of a report, would decrease the pressure on the Fed to do rate cuts. About four months ago the markets were predicting the economy would be slowing down in 2024, possibly too much and going into a recession, and this would result in the Fed doing 3-6 rate cuts this year. As new monthly reports have come out showing the economy has not slowed down as quickly as expected, the markets have adjusted their predictions, and the debate now is if the market will do 1-3 cuts this year.
If “hot” reports come out this week during an illiquid trading day, this could result in a larger than normal worsening of MBS prices. The opposite could happen if the reports come showing surprise worsening of the economy. This is why the probability of greater daily rate sheet changes, including mid-day rate sheet changes, is higher than in a normal market where all five days have liquid trading activity.
This Market Update and similar such communications are for informational purposes only and are based on publicly available information. These materials are general communications, which are not impartial, and are provided solely for discussion purposes, and not in connection with any product or service offering. The opinions and views expressed in this Market Update are as of the date of this communication and are subject to change. Any forward-looking views and statements contained in this Market Update are based on current estimates or expectations of future events or results. Actual results may differ materially from those described in this Market Update. The views expressed in this communication should not be attributed to Guild Mortgage Company as a whole and may not be reflected in the strategies and products offered by Guild Mortgage Account.
Cell: 503-679-1848
Address:
9755 SW Barnes Rd #600
Portland, OR 97225
HOME
ABOUT
BUYERS
AGENTS
LOAN OFFICERS
TESTIMONIALS
BLOG
CONTACT
NMLS #291980 | Company NMLS#3274 | OR ML-176
Guild Mortgage Company; Equal Housing Opportunity
Licensed by the Department of Financial Protection and Innovation under the California Mortgage Lending Act
APPLY NOW | LEGAL
APPLY NOW