Mortgage Rates Again Seeing Positive Movement

Mortgage rates are moving lower so far today.  Yesterday the stock indexes declined, one of first big drops since the election.  The reaction sent US interest rates lower.  Nothing trending though, just balancing prior to the long weekend and ahead of the inauguration on Jan 20th. Investors gave up on the DJIA at 20K for this year but not the end of the rallies. I noted that stock investors were a little too enthusiastic betting on all good things from the new Republican led Congress and the Administration. Trump was not a Republican for long and his policies that have led to the present 2017 euphoria are going to be re-thought once he gets into the job.

Tax cuts coming, but how much? Fiscal spending coming but again how much and how soon in terms of jobs and increased incomes. Cutting regulations are coming but it will not be as easy and rapid as most currently think. There are many in the Republican Congress that are not Trump advocates.  There has not been any comments from them since the election as it should be, but once the new Congress is gaveled expect more differences to surface. Not saying that the equity markets will turn bearish but a new sense of reality is highly likely.

The dollar has been on fire since the election but can the dollar continue to hold? Another question not getting the attention it deserves. With the end of the year tomorrow (in terms of trading) traders and investors closing, while pension funds and other institutions balancing portfolios now for 4-day weekend. Stocks will trade all day tomorrow but like last Friday the big investors and traders will be absent.

Weekly jobless claims this morning were in line this morning.  The November US trade deficit increased more than thought.  November wholesale inventories, after falling in October, increased in November.  Building inventories will help Q4 GDP. No reaction to the three data points. At Noon, the Treasury will auction $28B of 7yr notes.  Yesterday’s $34B of 5yr notes met with very strong demand.

Recently I have commented that we have some concern about how markets have reacted since the election. I do not mean in any way that I am not enthusiastic about what the economy will do in 2017 but believe the markets have so far ignored the reality of Washington politics -  that have not gone away. All of Trump’s goals are positive for growth but are not going to go down as easily or quickly as he or the markets expect. Interest rates are headed higher but will be choppy in Q1. The technical models, short and long term, still bearish for now. The 10yr now back to its 20-day average of US bond trading at 2.48% as of 11:00AM, and the MBSs are a positive 24BPS. It is not reasonable to make much of the improvements yesterday and so far today as trading is winding down and end of year trades are usually mostly housekeeping – however, it is still nice to see this happening than anything else.

Mortgage rates have moved slightly lower over the last couple of days, but continue to trade in a very tight range. Stock and bond markets are trading on very thin volume which could increase volatility. The outcome of the 7year note auction today could increase volatility and move mortgage rates slightly higher or lower.