A Look into the Markets - October 18, 2024

by Geri And Tim Penner

This past week interest rates were unchanged during a slower news week. Let’s discuss what happened and look into the week ahead.

“Rock steady, baby Rock steady, woo!” – Rock steady, Aretha Franklin

Oil Sputters

Oil and mortgage rates tend to ebb and flow together. When oil prices move lower often interest rates move lower as well. That is what happened earlier this week. Last Tuesday, oil had its largest one-day decline in quite some time, in response to news that Israel was not going to attack Iranian oil facilities. Also, OPEC issued a forecast showing sightings of less global demand for oil. Both stories pressured oil prices to move lower which helped long-term rates modestly improve.

Inflation Around the Globe

In another positive sign for bonds and rates going forward, inflation around the globe continues to moderate. Recent readings from Canada, the UK, and Europe were reported lower than expectations. If inflation moves lower around the globe, it puts downward pressure on global interest rates, including here in the U.S.

Retail Sales Not “Real” Good

Retail sales, a measure of consumer spending, were reported above expectations in the monthly reading, pushing the year-over-year number to 1.7%. That sounded very positive, but when looking at “Real” Retail Sales, which adjusts the number for inflation, they were negative. This means people are not purchasing more year-over-year; they are just paying more. Real Retail Sales peaked in April 2021. When Real Retail Sales flatten, as they have for a couple of years, it has historically led to a recession. As they say, time will tell.

4.00%

The 10-year Note yield, which also ebbs and flows with mortgage rates, did improve from the worst levels this week. The Government Note touched a high of 4.10% couple times and declined down to a low of 4% this week in response to the oil news we discussed. Now, 4.10% is serving as yield resistance, preventing rates from moving higher and, 4% is serving as yield support preventing rates from going lower. Whichever way the 10-year Note breaks out of this tight range, mortgage rates will likely follow.

Bottom line: Home loan rates were able to stop rising this past week, which feels like a victory after the recent spike higher. The next directional move will likely come from high impact news like inflation, labor market, or the forthcoming election.

Looking Ahead

Next week’s economic calendar is also light, with just a few releases, none of which touch on the Fed’s dual mandate of inflation and the labor market. We will have some Fed speakers showing up for their final comments before the next blackout period, or “quiet period,” prior to the important Fed meeting in a couple of weeks.

Mortgage Market Guide Candlestick Chart

Mortgage bond prices determine home loan rates. The chart below is a one-year view of the Fannie Mae 30-year 5.0% coupon, where currently closed loans are being packaged. As prices move higher, rates decline, and vice versa.

If you look at the right side of the chart, you can see how prices and rates have moved sideways after a sharp decline.

Chart: Fannie Mae 30-Year 5.0% Coupon (Friday, October 18, 2024)

Chart: Fannie Mae 30-Year 5.0% Coupon (Friday, October 18, 2024)