Mortgage Rates A Bit Jumpy Today

Mortgage rates are jumpy today, but not from the news today, but a continuation of what has happened since the Tax Cuts were announced on Friday.

Just about any news these days bolsters the US and global equity markets. Over the weekend, Japanese Prime Minister Shinzo Abe’s election victory lifted world stocks and the dollar this morning. His victory assures Japan will continue its quantitative easing, which means a weaker yen and stronger Japanese government bond prices.

Trump also saying that the re-appointment of Federal Reserve Chair Janet Yellen was still a possibility.

The 30 stocks in the DJIA continue to headline, but a more detailed look is not as shiny as it once envisioned. Does not take much these days to push the indexes higher, especially the DJIA. The broader market taking a breather last week and looking at volumes of trading it has lessened recently. That said, no one appears to be outwardly nervous (not selling) even though remarks and statistics are warning of an extended equity market.

Last week, the Senate voted to pass a continuing resolution to add $15 trillion to the debt over 10 years. That cleared the way for tax cuts, but still a lot of discussion about how much and to whom. Democrats are not likely to vote for any plan put together by Republicans, and Republicans in each chamber are not on the same page about most anything. There is almost 100% agreement that a tax cut package should happen, but there is not anywhere close to that about who gets what and by how much.

On Thursday, the ECB meeting, at which it is widely expected the bank will announce the beginning of reducing its QE. Mario Draghi in his recent speeches and comments has prepared markets for the moves to lessen market support.

One data point this morning was the Chicago Fed National Activity Index, expected -0.10 increased 0.17 (August index -0.37). Not much until Wednesday.

The key 10yr note yield increased big time on Friday as the DJIA ran up 165 points.  MBSs took a big hit.  Very key technical support now for the 10yr at 2.40%, tested three times since last May and has held. If the 10yr moves above 2.40% it will add additional technical bearishness in the rate markets and will push mortgage rates higher. Nothing new here - as long as equity markets refuse to pull back there is not much to push rates down. Inflation remains subdued which is helping and keeping rates generally stable recently. The technical models remain bearish in the wider view, but it is all dependent on stock market trading.

Mortgage rates are likely to stay in a tight range today.  However, this week we can expect to see some volatility due to the ECB and GDP numbers this week.