Mortgage Rates Start Lower Today

Mortgage rates started lower today with better MBS prices and treasury yields lower in yield.  Stocks opened on the light side this morning as it did yesterday, as there has not been anything impressive to shake it up.  I have mentioned this before, I believe stocks remain over-valued and presently subject to declines - longer look through remains positive as investors are all in on the Trumpenomics.

Weekly jobless claims were expected to have increased, but declined a little bit, but the new figure that most of us look at is the 4 week average, which went up a tad from the prior week. Claims are solid at these levels but from week to week we are seeing more volatility. Also, the preliminary data for Q4 productivity and unit labor costs came out and were in line with what was expected.

That is it for data today.  All the attention is now on tomorrow’s January employment data. Yesterday ADP surprised with its report on private jobs being much higher than estimates, 246K against estimates of 168K. The big increase over what was expected has pushed estimates for tomorrow jobs growth higher, from 170K to 200K area. More significant than job growth is the average hourly earnings, expected up 0.3% after increasing 0.4% in Dec.

Increasing wages gives the Fed a little more cover for moving rates soon. Speaking of that, trading in the FF futures suggests no rate increase in March, only a 30% probability. Here’s the thing about when the Fed will move - not the Fed, it’s what markets believe not what the Fed talks. It is very clear that the Fed will not increase the FF rate until trading in the FF market has a 60% or higher probability. Janet Yellen’s Fed is not going to surprise markets!

Increasing focus now on the UK as March nears and the Article 50 will be invoked by the UK to begin the exit - the period is 2 years from the invocation. The Bank of England has increased the growth forecasts for the UK; The bank predicts 2 per cent growth this year.  When Brexit was voted the reactions around the world were for the UK economy to worsen, as time as moved so too the outlook. If the UK economy holds together and does not dive to recession, the wider outlook suggests more EU countries may give it a try.  The EU is slowly unwinding as nationalism is increasing.

The dollar continuing its decline as Japan and Europe economies are improving. The dollar index now below its technical support at 100.00 starting today at 99.37 -0.38. Good for bonds and MBSs, bad for the stock markets.  At 10:30AM, the MBSs are still positive (+15), but not as much as it was this morning when it was a positive 34BPS.  The 10yr has subsided as well to where it started this morning at 2.46%.