Mortgage Rates Continue to Increase

Mortgage rates moved higher for the 5th time in the past 6 business days.  The past 2 days have combined to bring rates up higher than just affecting fees associated with the rates themselves. Under normal circumstances rates might move, but that usually takes 2 weeks as opposed to 2 days.  In fact, we have seen this twice already this month.  The only time we see rates moving any faster is during major blowouts like the weeks following the election or the 2013 taper tantrum. 

The stock market rallied as everyone at the NYSE can say that the DJIA now over 20K.  The Trump rally continues.  Comments from the floor are there is more room to run higher. If that is the case interest rates will move higher along with the indexes. CNBC calls it a milestone? Guess all of the other new highs over the last 15 years were just half-milestones. “An historic day”.

All Trump and his aggressive economic plans. The Keystone pipeline, the pressure on import prices and worn out trade deals, tax cuts for corporations and middle income America. Deregulation of many of the Obama regs and Dodd/Frank (by the way, where is Barney lately, he was being paid by CNBC as a commentator). That the indexes are making new highs is not surprising, it was inevitable and this is just the beginning for a while - until a Trump miss over something. Building the Wall, do not forget tunnels.

The dollar continues its recent retracement after its rapid increase since mid-December.  he dollar index at 99.99 (-028) braking the psychological 100.00 level. On Jan 3rd the index hit a high of 103.82; not sure yet whether the dollar is in a consolidation and retracement or the beginning of a reversal and dollar weakness. Nothing new regardless of Trump or Mnuchin trying to talk the dollar lower.  No country wants a strong currency as global trade depends on currency relationships. Trump sees the strong dollar as a burden for exporters and an obstacle to boosting manufacturing employment.

Treasury sold $34B of 5yr notes this afternoon, generally met with poor demand and sloppy bidding, similar to yesterday’s weak 2yr auction. Tomorrow weekly jobless claims are expected a small increase, December new home sales expected down, and December leading economic indicators positive after being flat in November. Treasury will auction $28B of 7yr notes at Noon.

Eight years of political grid-lock, increasing regulations, and confused geo-political plans are giving way to a free-for-all in equity markets. No real fears now, presently it is Christmas and the presents keep on coming. Then the Fed will come - next week the FOMC meeting but no increase in rates but should increase the Fed outlook for rate increases. 35 years tells me that nothing is this good and lasts a long time but take advantage of it because it may last much longer than many now expect. Interest rates in this situation have no way to go but higher.  Our next technical support for the 10yr note is the recent high from last December at 2.62%, and very likely to be tested soon if stocks continue higher and the dollar loses more ground.

In summary, if you took the risk in not locking yesterday, things are not any better today.  Again, under normal market conditions we would consider floating to the upper support of a range and locking as we got closer to the lower threshold of resistance, but we are not in a normal market environment.  Many unknowns, uncertainties, and what ifs are plaguing our economic outlook and will continue to do so until we have some clarity with our new administration.  For the time being, the only safe bet is to lock, even on a day following back to back sell-offs.  Just because a stock has dropped in price two days in a row, does not mean it is a good buying opportunity.    The trend is not our friend right now.