Manufacturing Inflation Remains Supportive of Low Rates

Stocks are falling once again this morning, as investors are concerned that a trade war agreement with China is not coming anytime soon. This is just another example of the back and forth whiplash that the markets have experienced over recent months. Of course, it won’t be long before the investors are once again excited about the prospects of hope for an agreement with China.

The Producer Price Index (PPI) report showed that inflation on the manufacturing side remained tame last month, with the annual pace of manufacturing inflation dropping from 1.8% down to 1.4%. This is a good sign for the longer-term direction of mortgage interest rates, which are heavily influenced by inflation levels. Tomorrow we will receive an update on consumer inflation via the Consumer Price Index (CPI) report. If this also shows a low level of inflation in the markets, the Fed will have a clear path to continue lowering short term interest rates. Over time, this will pressure mortgage interest rates lower, which will help provide stability to the housing market.

With mortgage bond prices remaining beneath significant ceilings of resistance, we will maintain a locking bias.