Mortgage Rates Down after Rally Today

Interest rates rallied nicely today. Was it a delayed reaction to the FOMC minutes? Maybe this is the turning point for stocks, bonds and the unrealistic beliefs of a Trump presidency. I have talked about it a few times, that markets were well ahead of reality.  Stocks have rallied since his election win, the dollar has strengthened to a 14 year high, and interest rates have increased 80 basis points on the 10yr.  We have seen our mortgage rates up nearly ¾ of a point for 30yr fixed rates. Recently the 10yr and MBSs have been slowly improving, today a huge move to lower rates as the technical indicators have turned positive.  

Yesterday and today the dollar dropped the most in the last six months, as it did treasuries improved. Recent trading in the stock market has been relatively quiet compared to the mania in December. The moves in treasuries started about mid-morning as short positions were peeled away and mortgage lenders that were selling forward with monitories had to think about buying back those commitments. Looks like investors and traders are getting it - that Trump will not be able to deliver quickly on his goals. In all my years, the way investors have been sucked in to all his campaign promises is shocking and cannot remember when markets through this amount of caution to the wind. Not that he will not get fiscal spending through Congress, or those tax cuts, or the re-working of the myriad of regulations that the Obama administration have piled on the last eight years; it is the timing. None of those things will engage in the economy for at least in the 4th quarter and more likely not until 2018. The FOMC minutes released yesterday afternoon referred to it when the minutes said the Fed would wait and see.

Tomorrow the December employment data at 7:30. Today ADP private jobs were 20K less than forecasts and declined 63K from November. Current estimates for tomorrow’s employment - NFP jobs +175K, private jobs +165K, unemployment 4.7% down 0.1%, average hourly earnings +0.3%. The U-6 is important as is the labor participation rate (no estimates on those).

I noted this morning that the momentum oscillators finally turned positive for treasuries and MBSs yesterday. I have also warned of increased volatility now and in the next few weeks. Still look for rates to increase in the longer run but near term some additional improvements although the ride may be bumpy. Stocks way too high, the dollar way too strong, the Fed saying it would wait to see before thinking about another rate hike. The Trump optimism out of sight with the euphoria. It will take most of this year for Trump and Congress to initiate all his plans, and that itself begs caution. Trump is not the second coming, good but it will all take time.

In summary, the bond market rally we have been waiting for arrived today, with a tepid ADP jobs report as the likely catalyst.  The numbers were not THAT BAD, and tomorrow's NFP is the "real" report, so it appears today's trading is more momentum than data driven.  At any rate, it was a significant improvement, and treasury yields are back below 2.4% - this could signal the start of a downward rate trend.  At a minimum, it makes tomorrow's action much more interesting.