Another week of whipsaw action in the mortgage bond markets has passed. Early in the week, mortgage bonds were hammered by comments from Philly Fed President Plosser, then recovered ground Thursday on weak economic data, only to sell off again on Friday. All told, mortgage rates actually closed out the week very slightly better than they opened, but it was a white knuckle ride all the way.
Anchoring a busy economic calendar is Friday’s July employment report. As always, the non-farm payrolls report is a key measure of economic health, and can drive mortgage rates. It is expected that the economy lost 70k jobs in July. Any number substantially higher than this may improve rates, anything much lower may cause them to rise.
As for the rest of the week, the employment cost index and GDP Chain Deflator (released Thursday) will give us a fresh read on inflation. Also on Thursday, the Chicago Purchasing Managers Index will take the pulse of the manufacturing sector of the economy.
We are watching the employment cost index and non-farm payrolls report closely for any signs of wage inflation. Wage inflation is a tough thing to achieve when the economy is shedding jobs, but if a (wage inflation) trend emerges, we may see the Fed go on the offensive sooner rather than later and begin to hike rates.
All of this is set against a fitful stock market: The "if stocks improve, mortgage rates get worse, if stocks get worse, mortgage rates improve" trade has been as reliable as any lately, and also bears watching.