Mortgage Rates to Follow Election Results

Over the weekend the FBI reported nothing in those e-mails FBI director Comey dropped on Congress a week ago last Friday that roiled polls and markets. Nothing new, just a lot of e-mails the FBI had already vetted per Comey.

There are three major issues this week that we need to watch out for – of course the big one is the election. The one good thing about Tuesday's election is that it will remove an element of uncertainty. Once the bond market knows the path moving forward, it can begin to adjust accordingly. Not only is the Presidency key, but so is the Senate. We could see a lot of initial volatility but then bonds will normalize. Basically, the bond market will be calmer with Clinton as she is more of a "known" but Trump presents a lot of "unknowns" such as a potential Dodd-Frank reform, Obama care reform, tax rates, control over House and Senate, a potential budget for the first time in 10 years, a possible change in the Fed reserve chair, etc. Many of those items also can have a stimulative impact on the economy in the shorter term and will weigh on bonds as result.

We also get a healthy dose of Fed Speak this week and they will be able to know what type of political environment they will be operating under moving forward. We will hear from Charles Evans, Neel Kashkari, John Williams and James Bullard.

Last, there are key releases of foreign data which include the minutes from the last BofJ meeting, Chinese Imports and Exports as well as PPI and CPI, German Industrial Production, and PPI.

Last week with the FBI announcement of more e-mails US and global markets were on the defense - the bond market rallied stocks fell. Those safety trades are being lifted this morning. The presidential election still close but increasingly tilting back to Clinton while Trump spent much of comments this weekend calling the election rigged. Not news that this election will be one for the history books.

The models remain bearish - the momentum oscillators also bearish. must respect it for the moment - a Clinton win will likely push rates higher, a Trump win should drive an initial move to safety in treasuries and support the mortgage markets. The Fed still expected to increase the FF rate at the December meeting. The longer concern in the equity markets is a softer outlook from companies about the economic outlook and although markets will not likely focus on it much - Clinton is on record to increase taxes once she remodels the Oval Office. I believe the make-up of Congress will have a big impact on the economic outlook and financial markets. In the meantime, between now and the end of the year attention will be focused on consumer spending.