• Wednesday’s mortgage rates should be close to Tuesday’s early pricing due to weakness late yesterday. If you saw an intraday increase yesterday afternoon, you should see a slight improvement in this morning’s rates. The bond market is currently up 4/32 (4.17%).
• Stocks are mixed again with the Dow up 145 points and the Nasdaq down 43 points.
• Yesterday’s 10-year Treasury Note auction was uneventful with the benchmarks pointing to a slightly better than average demand from investors compared to other recent sales. We did see afternoon weakness in bonds yesterday, but it came a bit after results of the auction were posted at 1:00 PM ET. There was nothing in the results that should have led to bond selling and doesn’t appear to have caused it.
• Today’s activities kicked-off with the release of the 3rd Quarter Employment Cost Index (ECI) at 8:30 AM ET. It revealed a 0.8% increase, meaning employer costs for wages and benefits rose during the July through September months. This was a tad softer than the 0.9% that was expected.
• The big news of the day and week is the 2:00 PM ET FOMC meeting adjournment. It is widely expected that Chairman Powell and friends will cut key short-term interest rates by a quarter point today to help support the softening employment sector.
• There is little chance it will be unanimous and could be decided by just a vote or two.
• Generally speaking, a quarter-point cut should be a non-factor for the markets since it is so widely expected. Assuming they make a .250 cut, traders will be focused on what the Fed is likely to do going forward. This will come from the post-meeting statement, the so-called dot plot and comments during Chairman Powell’s press conference.
• By theory, bad news for bonds and mortgage rates would be them holding rates at current levels. Failing to lower key rates would be a clear sign that they are more concerned about inflation rising than the softening labor market. Stronger inflation makes long-term securities, such as mortgage-related bonds, less attractive to investors because it erodes the value of the bond’s future fixed interest payments.
• It is also very important to remember what happened following the previous two rate cuts this year. The afternoon of the September and October FOMC meetings and the following morning both brought a sizable upward move in rates despite getting quarter-point Fed rate cuts. It would be prudent to consider that pattern if still floating an interest rate and closing in the near future.
• Along with the meeting adjournment, the Fed will also release their post-meeting statement and announce their revised economic projections (including the dot-plot that predicts where key rates will be in the future) at 2:00 PM. Those will be followed by a press conference with Chairman Powell at 2:30 PM ET.
• It is quite possible to see large swings in the markets this afternoon due to the amount of Fed information we will get and the uncertainty of what will be said about the future.
• Tomorrow only has the weekly unemployment update and the 30-year Treasury Bond auction results scheduled. We will address those in this afternoon’s update that will be posted shortly after the markets have an opportunity to react to the Fed events.
• Visit our Daily Commentary page on our site for detailed explanations on current news that is relevant to mortgage rates.