Mortgage Rates Moving Sideways

Mortgage rates are moving sideways today as the 10yr opened at 2.32%, which has been the bottom of the range we have been seeing, but has increased its yield to the current level of 2.35% at 10:45AM. MBSs are in slightly negative territory, but neither of these issues are of any concern at the moment.  The two data points that came out this morning was the February US trade deficit, which came in a little better than anticipated. Later we got February factory orders and final durables coming in as expected, with January figures revised upward. Capital goods orders, which offer a measure that goes to the heart of business investment, have been weak and have not confirmed the enormous strength in business confidence.

In early trading this morning, the US stock indexes were a little weaker as investors increasingly worry about some pullback that for weeks now - but this has not happened as has been expected. Interest rate markets have declined in yield since the day the FOMC increased the FF rate on March 15^th.  The Fed has been clear that here will be at least two more rate increases this year, but there is still some doubt that this will happen as there is still a lot of doubt out there as can be seen by the way the bond market is currently reacting.

The US trade deficit was the smallest since October.  March auto and truck sales released yesterday were disappointing and helped the bond market with the improvement yesterday, as sales were less than anticipated.  With auto inventory levels at near record highs, the lackluster new vehicle sales figures reported for March are likely to fuel doubt over whether the US auto sector can bounce back from the weak start to 2017.

There is a sea shift happening in markets now.  I kept on stating that all of those Trump promises (tax cuts, border tax, fiscal spending increases and redoes on trade pacts) would not occur this year. The excitement generated in equity markets was unrealistic making investments on those lofty goals this year was overly optimistic. At the best most of those challenges will not happen until 2018, and most believe none of them will match what markets were expecting. Now auto sales are slipping adding to the shift in thinking or the moment. Tax cuts are coming, fiscal spending is going to pump dollars into the economy and trade pacts will be renegotiated but less than Trump touts. So, what we expect now is some pull back in equity markets that will support the rate markets. Later this summer another powerful rally in stocks, looking for the DJIA to climb to 22K. After that, this Fall will not be pleasant.  Dave Shirmeyer who I always like to follow and quote from Teno3Magnet, states “looking for a very steep drop in stocks and interest rates lower than now. The Fed won’t be able to increase rates in Q4 this year; look for just one more cut this year, likely in June.”

This is employment week as we get the ADP reports tomorrow. ADP job gains this year have exceeded forecasts by a wide margin and have exceeded the BLS data since January. Stay tune as tomorrow can be exciting, but let’s see what the rest of the day brings us.