Mortgage Rate Market is Acting Crazy Today

Mortgage rates are moving higher today as the market is acting crazy today.  For the past two days we saw the retracement that we have all been talking about in the market, but that is slipping away with what is happening with the oil.

Before we get into the big issue of oil, there was some other data that would have caused some market concerns but is taking a back seat to the above issue.  The November ADP Private Payrolls were much stronger than expected (216K vs est of 160K) and has traders thinking that Friday's NFP will at least meet the expectations of 174K.

October Personal Income jumped higher and was much better than the expectations, plus September numbers were revised higher than reported.  This has traders expecting continued strength in the Average Wages data on Friday. Personal Spending increased but that was lighter than the expected, but the prior month was revised upward.  If it was not for that upward revision to September, October's reading would have been a little light.  The Core PCE YOY remained at 1.7%, still below the Fed's target rate of 2.0%.  The November Chicago PMI blew the doors off any estimates, coming in at a very robust number that was the strongest reading for this bell weather indicator since January 2015.

Weekly Mortgage Applications dropped and October Pending Home Sales was lighter than market forecasts.  We will get the Fed’s Beige Book today at 1:00.

President Elect Donald Trump has selected Steve Mnuchin as Treasury Secretary and Wilbur Ross as Commerce Secretary. Mnuchin has said that he wants to drop the corporate tax rate down to 15% and lower personal tax rates as well. He also supports reducing regulation. This is very favorable for our economy and negative for MBS.

Back to Oil. Two "officials" have said that OPEC has agreed to a 1.2M barrel production cut. However, this is not an official OPEC announcement AND we do not know what the break down is off the cuts.  The explosion of oil prices this morning brings inflation back on the front burner for the bond market; already bearish, the increase in oil prices is driving yields higher and MBS prices down in big movements (see below). We didn’t believe OPEC would actually make a deal, given the reaction traders didn’t believe it either; we will see if it happens and if it sticks.

The markets were counting on OPEC not reaching a deal and that has not happened.  Combine that with a lot of very positive economic data today and you get high volatility and higher mortgage rates.  Expect mortgage rate volatility to continue throughout the day.