Mortgage Rates Respond Favorably to Weak Data

Mortgage rates responded favorably (with the direction of the bond markets) to a series of weaker economic reports.  In general, weaker economic data tends to help bonds and hurt stocks.  There was more selling in the equity markets today as the overdue correction and consolidation continues.  Yesterday there was some improvement in the rate markets with the stock indexes lower, and today we saw even more – but only another tidbit as the bellwether 10yr still tethered in its one month range keeping MBSs also tied to a narrow trading range.

From here, the potential for volatility increases as data and events get even more serious through the end of the week.  There are several important reports tomorrow as well as an updated policy statement from the Fed.  Although there's essentially no chance that the Fed will hike rates at this meeting, investors will nonetheless look for clues about the Fed's thinking based on subtle changes in the text of the statement. Markets have moved somewhat away from the three rate increases this year, most presently believe two is all the Fed can and will do this year. As always though it is a moving target and based on inflation and economic growth.  

Tomorrow key data starts off with the January ADP private jobs report expected at 168K and the beginning of traders focusing on employment data released on Friday. ISM national manufacturing index expected at 55.0 from 54.7 (but the Chicago data may lessen the expectations known as whisper numbers. December construction spending and January auto and truck sales will also come out in the morning.

These are the scheduled data but also the FOMC policy statement tomorrow afternoon reigns high for markets. Will there be any significant evidence the Fed is ready to move again?  

MBS prices improved today but we are not too impressed. The two reasons, the weakness in stocks and the weakness in the dollar. Both of these issues so far are not trend changes. The DJIA was down 175 points this afternoon but in the last 30 minutes of trading the index improved to 107. The dollar index broke support at 100.00 today and has lost ground over the last month; Trump trade ideas and potential trade wars working against the dollar.

In summary, bonds rallied moderately today, but still remained within our recent ranges.  This market seems reluctant to commit to either higher/lower rates at this point.  Floating might net risk-tolerant borrowers some pricing gains, the only caveat is that losses may be just as likely.  Right now I am suggesting to people to lock as I would like to see more of a trend towards lower rates before I sail my float boat.