Mortgage Rates Moved Higher Following ECB Announcement

Mortgage rates did rise a bit today, even though much of it was only seen in fees charged to get those rates.  The bond and mortgage markets continue to consolidate the recent increases in rates - not getting any worse but no momentum to improve the last two weeks. Choppy with one day up (price) and the next day lower. Today there was a meager attempt to increase prices off their early morning lows but late this afternoon markets backed off.  The roller coaster has seemed to reappear as this looks like the same pattern we had last year in 2015.

The news today came out of what was said at the ECB meeting, which extended its monthly QE purchases from March 2017 to Sept 2017. It was expected but the wrinkle was the ECB lowered the monthly purchases from $86B to $64B. Draghi signaled he stood ready to add to stimulus if a proposed reduction in the current level of asset purchases fails to shore up the economy.  The US is getting close but the EU still has a way to go to get inflation moving. As has been the case, Draghi left the door open for more purchases if economic improvement fails. There are still four major European economies struggling with huge debts, not new news, Greece still has not been able to pay and now last Sunday Italy voted to essentially ease the austerity pressure on its economy. 

In this bearish interest rate environment, it does not take much to spook investors. The ECB meeting really did not change much and saner markets know that it will continue to support the EU economy even it takes another century or two - yet the announcement has been taken as a disappointment. Not much but enough to choke off any impetus to buy US treasuries.  

The Trump Rally continued today, an amazing reaction to a president-elect that markets hated and other than his comments and promises nothing has been put in place. Too much too quick but it’s a freight train with no brakes hurdling down the tracks. Stocks see only positives from the new administration and Republican control of Congress now.  

This week has been thin on economic releases, as we see tomorrow the mid-month U. of Michigan consumer sentiment index and October wholesale inventories.  Better consumer sentiment adds to the stock market bullishness, the decline in wholesale inventories would suggest business are using up supply, also a minor plus for the economic outlook.  

The dollar strengthened more today against the European currencies, but weakened a little against the yen. The dollar index climbed higher, close to a new near term high. After three days of declining crude oil prices, crude increased today to almost $51.00.

In summary, bonds weathered the ECB's policy statement and Chairman Draghi's press conference today, as it largely followed expectations.  There is no longer a confirmed upward trend in rates, as treasuries seem content to drift near 2.4%.  The "lock/float" scale is largely balanced for now, but if you choose to float, make sure you have a stop feature just in case there is movement.