Mortgage Rates and Stocks Improved Today

Mortgage rates improved even in the face of the stock market also improving, which is usually not the norm.  Oil rose today, gaining back a little of the decline yesterday. These days’ crude and stock indexes are moving in the same direction. Rumors were floating this afternoon that OPEC and non-OPEC members may be talking about a cut in production, however, I do not believe it, yet any rumor in an over-extended usually finds legs for the moment.  Traders speculated that large producers might be more willing to cut production, which could alleviate the global glut of crude. Unlikely now that there will be any cutting of oil prices given the growing rift between the Saudis and Iran - nevertheless crude increased today.

Treasury sold $26B of 2yr notes this afternoon, and once again foreign central banks were strong buyers. FOMC  tomorrow at 1:00 pm - no press conference and no rate increase.

The statement has to be crafted to re-gain some of the Fed’s recent credibility in order for it to be meaningful in the long perspective. No one thinks much on the initial reaction, markets usually move in volatile swings on the initial reaction; traders have little or no time to think much. The Fed’s misses on inflation and economic growth forecasts have lessened reliance on Fed comments and differences of opinions from various Fed regional Presidents.

Tomorrow December new home sales will be released at 9:00, Crude oil inventories at 9:30, and the Treasury will sell $35B of 5yr notes at Noon, an hour before the FOMC statement. Friday the first look at Q4 GDP, the present thinking is growth at 0.9% for the quarter - it is the advance report so it does not have all of the data digested from the third month of the quarter - generally revised the following month. That will be the next focus after the policy statement tomorrow.

The primary focus is still anticipating the bond markets movement for the near term. Today indexes rallied but interest rates held well. The models are still bearish but I am worried that the 10yr note has been unable to break away from 2.00%. Buyers need a huge push to by the 10yr with a 1 handle on it. MBS prices, no matter what you hear from some in the mortgage information arena, are driven by movement on the 10yr Treasury note.

In summary, much of the improvement with bonds has been due to stocks selling off, known as a flight to safety trade.   Today, both stocks and bonds are rallying which does have me optimistic that rates can hold onto the recent gains.   Despite my optimism, I think consumers that are within 15 days of closing should strongly consider locking in the recent gains.  The gains could disappear very quickly - and any further improvement could be slow.