Mortgage Rates Following Yield of 10YR Treasury Note - DOWN

Breaking out early this morning thus far at 11:00AM is the 10yr note after being trapped in a narrow range for the last three weeks traded at 2.25% and cutting through many of technical resistance levels that I keep mentioning here in my reports.  We have also seen the MBSs follow suit with a dramatic increase of 41BPS. 

It is about the stock indexes we have the DOW already down over 200 points and NASDAQ down over 100.  I have stated that if stock indexes were holding there was no incentive to push yields lower.

The reports that came out this morning are just information and does not move the markets, as we had Weekly MBA mortgage applications weak last week, but does show that purchase apps are up over 9% from this time last year.  Continued mixed signals in the housing data, some like the previous week’s NAHB housing market index improving, others like this morning not so good. Overall though, housing is still holding well given the continuing lack of inventory for sale. A chicken-egg condition - no inventory because few want to sell, would-be sellers have little to look at… A circle - where does it start?

Concern that U.S. President Donald Trump's reform agenda could be slowed down, and that Trump himself could even face the threat of impeachment, added to disappointing U.S. economic data today. The news hit the dollar and spurred a pullback in richly valued stocks. Reports that President Trump asked then-FBI Director James Comey to end a probe into his former national security adviser have raised questions over whether obstruction of justice charges could be laid against President Trump. Trump’s problems may finally be beginning to impact US equity markets.  I feel that it is too soon to make that judgment but the dollar has been crumbling against major currencies as the Trump problems escalate. Many large money managers are now concerned about the eventual impact of Trump’s growing issues. At nearly 18 times forward earnings, the S&P 500 SPX trades at a significant premium to its long-term average valuations of 15 times, according to Thomson Reuters data.

Trump impeachment is unlikely, but his continual mess-ups are going to add more stalling of the positive agenda he was elected on. The stock market exploded on those beliefs of tax cuts, fiscal spending and de-regulations. We have long noted that tax cuts and job growth along with GDP growth at 4.0% this year were very optimistic. Now Trump continues to fortify that outlook. Political divisions in Washington, while not news, are increasing, leaving Republicans unable to act. In the Republican party, the divisions are escalating.

Is this the beginning of the long-awaited correction in US equity markets? Too soon to tell this morning, as we have seen openings with declines turn into rallies by the end of the day. There is still unusual and excessive bullishness from investors and market gurus, analysts, and economists.

The 10yr has broken out of its recent range, cutting through 2.30% quickly this morning, but it needs to hold it through the rest of the day. If we get a close under 2.28% today on the 10yr, then I see it going to 2.17%. 

The geopolitical issues noted above are spilling over into the equity and rate markets. Look for increased volatility today and through the week. In addition, we have the EIA Petroleum Status Report that could increase mortgage rate volatility this afternoon.