Mortgage rates jumped on Friday, marking the second straight day of higher interest rates in the U.S., amid fears of a Chinese stock market crash and uncertainty over the Greek bailout deal. While mortgage interest rates began the past week in lower territories, with the downward movement largely fueled by headlines on Greece’s possible exit from the Eurozone, rates reversed course later during the week, and eventually erased all of the improvements since the beginning of the month.
An emergency summit, which led to marathon overnight negotiations, began on Sunday between European leaders and Greece in order to reach a bailout deal and rescue the troubled country from the brink of financial collapse and keep it in the Eurozone. Over the weekend, Greece was told, that they wouldn’t get the massive bailout they need, until they commit to deep financial reforms and restore trust. Finally, after 17 hours of negotiations Eurozone leaders reached an agreement with Greece on a third bailout deal, that will keep the country in the single currency bloc. European stock markets have gained soon after the news broke out that European leaders had reached a bailout deal to resolve Greece’s debt crisis.
Back on Friday, the yield on the benchmark 10-year treasury note surged to 2.42% at the close of the trading session from the previous 2.32% it carried on Thursday. The long-term 30-year treasury yield edged up 9 basis points to 3.20% on Friday.
In other news, McLean, VA-based mortgage-buyer Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, which saw the average rate on the 30-year fixed conventional home loan dropping to 4.04% from the previous 4.08% that it had a week earlier. According to the federal agency’s weekly report, lenders were offering 15-year fixed mortgages at an average rate of 3.2% last week, a slightly lower rate compared to 3.24% in the prior week. Average mortgage rates dipped in Freddie Mac’s latest survey, due to the uncertainty over Greece’s debt crisis and a plunge in the Chinese stock market. However, we should note that the mortgage-finance company collects responses from lenders in the first half of the week, thus the survey results reflect market conditions early in the week.
This week’s economic calendar is going to be rich in domestic data. Some of the key reports in the week ahead include fresh data on retail sales, housing starts for June and a couple of price indexes. While it’s difficult to predict the impact of the upcoming domestic economic data on mortgage rates in the light of the current volatile market environment, there’s a potential that significantly better or worse figures may cause big swings in interest rates. Overall, we believe that headlines on Greece’s debt deal are going to dominate market sentiment in the week ahead, thus they could have bigger impact on U.S. treasury bonds and consequently on mortgage rates.
Retail sales data for June is scheduled for a release on Tuesday. The consensus expectation is a gain of 0.3% in June, following a 1.2% increase in May. With vehicles exluded from data, retail sales likely rose 0.5% last month, according to the latest forecasts.
Producer Price Index for June is set to be released on Wednesday, and the latest projections from economists point to an increase of 0.2% month-over-month. On the other hand, the core PPI, which doesn’t include volatile food and energy categories, likely rose 0.1% last month.
The week ahead will also see the release of a few regional manufacturing data. For one, the Empire State Manufacturing Index for June will be released on Wednesday. Economists estimate that business conditions in the New York region likely improved to 3.25 in June, compared to -1.98 in May. On the other hand, the Philly Fed Business Outlook Survey will come out on Thursday, and economists expect a rise to 15.0 for June’s data.
Furthermore, the U.S. Industrial Production Index for June expected to show a modest increase of 0.2%, compared to the 0.2% decline a month earlier. A fresh report on industrial production will come out this mid-week.
Fed Chairwoman Janet Yellen will deliver testimonies to Congress on Wedneday and Thursday which may provide investors some insights on how close the FOMC is to raise short-term interest rates, the first time in nearly a decade. Most analysts believe the Fed is committed to tighten monetary policy preferrably before year-end.
During the second half of the week some important housing industry reports are scheduled for release. The National Asssociation of Home Builders / Wells Fargo Housing Market Index for July expected to show no change in homebuilder sentiment. Back in June, the same index rose to 59 from 54 in May, as outlook on home sales remained favorable.
Housing starts in June likely jumped 8.1% to an annualized rate of 1,12 million units, according to the latest estimations from economists. This important housing market indicator on building activity will be released by the Commerce Department on Friday.
The Consumer Price Index for June will come out on Friday, and it’s expected to show an increase of 0.3% month-over-month. When food and energy prices taken out from the equation, the index is expected to show a gain of 0.2%.
Analysts expect a slight decline in consumer sentiment in July, following a five-month high in June. Currently, economists estimate a reading of 96.0 for June’s consumer sentiment index.
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