Mortgage Rates Trending Lower After Increase Yesterday

Mortgage rates are trending slightly lower so far today after we saw heavy selling yesterday in the bond and stock markets.  Along with this, we have also seen the dollar weakened and crude oil going up.  The size of this move was unexpected by most people, and is more than likely related to what was stated overseas by Mario Draghi.  He stated that the ECB might need to begin removing some of its stimulus - a complete reversal from his remarks after the recent ECB meeting two weeks ago.    Of course, this reaction set their markets upwards, and the US followed.  Central banks, including our Fed are flailing - regardless of the amount of belief markets attribute to central banks’ the banks are not any more knowledgeable than my dog Nina. That said, you cannot blame them, everything economists have learned in the past is now a huge question market. The recent proof is the Draghi comments.

Yesterday the IMF made noise about the climbing US debts and also reduced its outlook for US growth from 2.5% to 2.1%.  It was also noted that the dollar was too strong. It does look like crude oil looks like the recent strong selling has momentarily ended.

The reactions yesterday in the bond and mortgage markets sent the 10yr up to 2.21% and drove MBS prices down by the end of the day.  (I miss two days of work and look what happens…)

Weekly MBA applications last week fell from the prior week putting the unadjusted purchase index 8 percent above the level in the same week a year ago. Refinancing applications fell 9 percent from the prior week, with the refinance share of mortgage activity decreasing by 1.0 percentage point to 45.6 percent. Purchase applications still firm, up 8 percent year-on-year, and the drop off is an extension of last week's pullback from the June 2 week very strong pace, when purchase applications attained the highest level since November 2010.  

The US trade deficit narrowed in May to -$65.9B from -$67.1B in April. Consumer exports narrowed the gap, as exports of consumer goods, like vehicles have been very weak, but jumped up in May. Exports of capital goods, however, fell which is an indication of weakness in global business investment. Total exports of goods overall did increase, but was not a market mover, but interesting as one of the ingredients in GDP calculations. 

May NAR pending home sales, expected to have increased 0.5% from April, but reported sales had declined and down 1.7% yr/yr Lack of supply and concerns about the economic outlook sited.

The selling yesterday in the bond and mortgage markets did damage to our technical outlook, the yield on the 10yr closed slightly above its 20-day US average and this morning is testing the 40-day average as of 10AM, it is back to 2.21% after being up as high as 2.24%. Right now, I am on hold as I try to comprehend where we are going, even with the slight shift from the last few days.

This is a very pivotal week. We have been trading in a very well-defined channel for the past two weeks. Unfortunately, this looks like the opportunity to break out of that channel, and it may be for worse mortgage rates this week. That momentum lower can only come from the passage of the Health Care reform in the Senate. IF it is not passed, then we will stay in our current channel.