Outook for Mortgage Rates

The dam broke a little yesterday for the near term positive outlook for interest rates. The jump in January construction spending, more solid February auto sales and a better February ISM manufacturing index (although still in contraction levels) - add in the increase in January personal income and spending, both above forecasts and the better Q4 GDP last week and the flood gates opened yesterday. A number of key economic reports built steam yesterday and drove stocks higher and MBS prices down 36BPS.

This morning ADP reported its February jobs report and it came in a little better than estimated, but January figures were decreased, so it was a bit of a wash. There was no noticeable movement in markets on the report. At 11:00AM, stock indexes fractionally lower and the 10yr note yield up to 1.84%, with MBSs under pressure down 12BPS after the open but was unchanged by . MBSs are being hit hard today so far and were knocked down hard yesterday.

Almost all of the recently released economic reports have been positive for the economic outlook. Yesterday’s equity market rally is momentary evidence that investors are more relaxed about buying. How many times have I talked about volatility and uncertainty? It is increasing in magnitude now. A lot of the trepidation that dominated in January has lessened. How long it will be sustained is of course, data dependent. The technicals, as I have been noting have lost a lot of the momentum we had in January and early this month. Crude oil has settled down and presently not much of a concern to traders.

I am seeing a lot of bullish comments now, and stocks have gone up. Good jobs today from ADP, even with the revisions.  If Friday’s BLS data mirrors the ADP data the Fed will be back in play on debates of a rate increase in two weeks. Probably will not happen but the clock is ticking.  If the economic outlook remains upbeat the Fed has a short window to move. There is not likely to be any Fed movement till after August this year. All of this depends whether the economy is growing, but I do not believe it is and still look for lower rates this year.