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Will US mortgage rates remain above 7 per cent?
If the average cost of a new US home loan holds above 7 per cent for a fifth week, it will be equal to the most painful run for homeowners since January 2002.
Mortgage rates have doubled since the Federal Reserve began tightening monetary policy 18 months ago, but rising borrowing costs have not had the expected effect of cooling house prices — a factor that would have made house moves more affordable.
Because most US homeowners hold 30-year fixed-rate loans, they have in effect been trapped in their properties because they cannot afford to switch from their existing low rates. Roughly three-quarters are paying less than 4 per cent, JPMorgan estimated recently.
Mortgage costs are being watched closely by investors who have enjoyed gains of more than a third by backing leading homebuilders this year. That market has benefited from higher demand for new houses because of the limited supply of existing ones.
The latest data from the Mortgage Bankers Association, covering the week to September 1, is due on Wednesday. Rates stood at 7.31 per cent in the week to August 25, and should have eased slightly as Treasuries rallied, pushing yields on benchmark 10-year notes to a three-week low. Jennifer Hughes
Have Canada and Australia finished raising rates?
The Bank of Canada and Reserve Bank of Australia kick off September’s slew of central bank meetings, with markets betting that they will set the tone by pausing rates as monetary policymakers in the western world reach the twilight months of an aggressive rate raising campaign.
The Bank of Canada, which delivered a 0.25 percentage point increase at its last meeting, is expected to hold rates at 5 per cent on Thursday despite recording stronger-than-expected inflation of 3.3 per cent in July.
Swaps markets are pricing an 80 per cent probability that Canada’s central bank will hold rates, with a slowdown in economic growth and a rise in jobless rates giving scope for a rate pause overpowering concerns of a resurgence in inflation.
Similarly the Reserve Bank of Australia is expected to keep its key interest rate at 4.1 per cent for the third month running. Australia’s inflation rate fell more than expected in the year to July, bringing the headline rate to 4.9 per cent. On top of cooling price growth, unemployment also increased 0.2 percentage points to 3.7 per cent in July.
Markets are pricing in a near certainty that the RBA will hold rates next week. But analysts at ING expect a further rate rise this year, noting insufficient signs that inflation will cool to 2 per cent in the coming months.
The central bank decisions come in a week where traders have pared back expectations of rate rises elsewhere. Markets are now betting that the Federal Reserve and European Central Bank are both likely to have finished raising rates. Mary McDougall
Will Turkey’s lira strengthen?
Turkey’s lira has already lost more than half of the gains it made after a sharp boost in interest rates — a break with years of unorthodox policy as the country’s new economic team attempts to tackle its outsized inflation problem.
The lira rose close to 6 per cent against the dollar last week after Turkey’s central bank raised its one-week repo rate by 7.5 percentage points to 25 per cent, bringing the country’s interest rate to nearly triple the level of when President Recep Tayyip Erdoğan was re-elected in May and appointed a new central bank governor.
But the currency has since slid more than 3 per cent, bringing it back close to historically low levels. Turkey’s inflation rate jumped to almost 50 per cent in the year to July, boosted by the lira’s weakness pushing up the cost of imports.
Under the direction of new finance minister Mehmet Şimşek, Turkey has abandoned its costly defence of the lira and allowed the currency to plummet more than a fifth against the dollar since the end of May.
Analysts say that the lira will continue to depreciate until investors have confirmation that Turkey’s central bank is committed to further monetary tightening.
“The recent hike is very positive but not positive enough,” said Cagri Kutman at KNG Securities. “The next central bank meeting will be key. With inflation at 50 per cent, the central bank raising rates to 25 per cent has no meaning at all in real terms — they are still deeply negative.” Mary McDougall
