BRAZIL: Brazil Plans to React to US Tariffs on Four Fronts: CNN Brasil

The MBA mortgage applications market composite index rose 9.4% W/W in the week of July 4 (2.7% prior), the biggest increase in a month to the highest level in 13 weeks (all on a seasonally-adjusted basis). 

• Gains were more or less equally attributable to purchases (+9.4%) and refinancings (+9.2%). While refis hit a 12-week high, this was the highest purchases index since February 2023.
• As such it appears that there is some life returning to the mortgage market, though both purchases and refis are below levels seen both during the 2020-21 boom (indeed refis are currently 20% of those levels) and prior to the pandemic.
• The latest uptick appears to have been triggered by a pullback in mortgage rates, with 30Y conforming at a 13-week low 6.77% having fallen 16bp in the last month.
• Indeed the last time purchase applications were this high, 30Y conforming yields were 6.18%, with buyers taking advantage of what had fallen to what was at that time a 21-week low.
• Activity both then and now confirms sensitivity to mortgage rates, which at current levels continue to strain affordability.
• One additional note is that 30Y jumbos at 6.69% are trading inside regular rates by 8bp, the most since October 2023.

ECB's Nagel speaks today in Tübingen on the topic of "Target achieved, but challenges still remain – monetary policy since the 2021 strategy review" - his comments appear to be seen in conjunction with the ECB's strategy review published last Monday. Key highlights below:

• "We need to be prepared for price developments to become more volatile in general. I am afraid that heightened uncertainty will become the new normal. And a number of structural developments suggest that price pressures will remain elevated over the medium term."
• "With the recent experiences in mind, I am convinced that the use of large-scale asset purchases should remain the absolute exception."
• "Although this is not the time for rate forward guidance, forward guidance remains in our toolbox. The same is true for the other instruments, notably large-scale asset purchases and targeted longer-term refinancing operations. However, we will usually use these tools only at the lower bound of interest rates, where they have proven to be useful."
• "We will therefore aim to formulate forward guidance in more flexible terms. A state-dependent formulation would help in this regard. State-dependent forward guidance means that it is tied to certain economic conditions, for instance an inflation threshold, and not to a specific schedule. It makes it clear under what circumstances monetary policy will deviate from an announced path."

• GBP1.125bln have been on offer.
• This leaves GBP35.127bln of the gilt in issue.