Strong Jobs & Inflation Number Pushing Mortgage Rates

Mortgage rates are trending slightly worse this morning.  Even before the data this morning the 10yr note yield was higher and stock indexes were rallying. Once again markets were surprised, the Bank of England was widely expected to lower interest rates this morning but did not.

We continue to get strong jobs data. This time, Initial Weekly Jobless Claims were much lower than expected. The more closely watched 4 week moving average dropped below 260K (259K) which is a 42-year low.

At the same time, we got our second set of inflation related data. The June Producer Price Index did show upward pressure in inflation as the Headline reading was almost three times the market expectations and the Core data was four times the market expectations. The more closely watched YOY Core PPI increased to 1.3%.  The jobs numbers and the inflation numbers were both stronger than expected helping to push mortgage rates slightly higher this morning.

Larry Fink, Blackrock on CNBC this morning questioning the present level of US stock market indexes; thinks they are too high unless all of the assumptions that are running the market higher actually come to pass: "I don't think we have enough evidence to justify these levels in the equity market." He wasn’t very optimist but fell short of criticism of the present levels. He worries about low and negative rates; "I would not be surprised — I'm not predicting it — if somebody told me the 10-year Treasury is at 75 basis points, I would not be surprised," Blackrock is the largest asset manager in the world.

PPI this morning renews concerns in the bond markets that inflation may not be as tame as is thought. Tomorrow the CPI for June will be reported, more important than PPI. Fed people cropping up like dandelions this week.

The 10yr note yield this morning has breached its 20 day average for the first time since mid-May. Yesterday the 10yr did hold our first and minor support at 1.53% - the more significant support is at 1.60%. The techs are increasingly more negative at the moment. One key this morning that is driving stocks higher, JPMorgan/Chase reported much better earnings in Q2 than was expected. The thinking has been that the lower rates would weaken banks’ earnings. Global markets still roiled by the UK vote; the initial reaction two weeks ago from Jamie Dimon (JPMorgan/Chase) was extremely bearish, now he has a more upbeat outlook.

What does this mean? It demonstrates the uncertainty that hangs over the EU and Great Britain that has flipped markets. Japan also moving markets higher (stocks) and rates higher with expected stimulus. Mix in the comments from Larry Fink (above) to further add uncertainty going forward.  Caution is still there, but it might be wise to see if you should lock up longer term.  I will stay at 15 days, but might change later this afternoon if this momentum continues.