Mortgage Rates Still Moving Higher As Volatility Continues

Mortgage rates are again moving higher as we are still seeing volatility in the markets. Trade this morning in the stock index are slightly better after the DJIA closed over 20K yesterday. The bond and mortgage markets yesterday had prices lower and yields increasing – this morning at 11:00AM, we are seeing more the same as the 10yr as the 10yr is at 2.53% and the MBSs are down 20BPS.

Investors seem to ignore the weak underlying economic fundamentals in favor of believing Donald Trump will be successful in all his plans to increase growth, wages, massive reduction of regulations that had been added over the previous eight years, infrastructure spending (likely beginning with The Wall) and lower taxes. Valuations of equities in general are too high based on expected economic performance this year.  The Fed is poised to increase rates three times this year (the first may come in March), and what is shaping up to be a volatile global outlook (Brexit, currency wars, potential trade wars, and extremist tendencies directed toward the US). Those are the issues presently taking a back seat to the belief the US is on the verge of an economic growth path. Whether you believe or not - as the old saying goes, IT IS WHAT IT IS and it is not a good idea to fight it or ignore it.

Weekly jobless claims this morning were a little higher than forecasts but claims are not much of a factor recently as 100% of economists, the Fed and investors believe the US is at full employment levels. December US trade deficit basically matched November's deficit and was very close to market expectations.

December new home sales declined more than anticipated, but was offset somewhat by November revised numbers.  New home sales are signed contracts in December, which were the third lowest in 2016.  Prices did increase 7.9% yr/yr.

December leading economic indicators +0.5% as expected, the best in 2016. At Noon, the Treasury will sell $28B of 7yr notes - the 5yr yesterday and the 2yr on Tuesday were rather sloppy and not very aggressive bidding.

The UK reported very strong growth in Q4, the best of all G-7 countries and defying the consensus so far from economists that the UK would suffer on the Brexit vote. Data show growth was driven by the services sector, which produced 0.8% more between October and December than in the three preceding months. Services make up 79 per cent of the UK economy.

Bank of America Merrill Lynch, Michael Hartnett, agrees that this present increase in stocks will not last much longer - saying it is its last 100 days. Targets such as the S&P500 reaching 2500 (it’s now at around 2300), oil reaching $70 (Brent is now at $55.24) and the dollar index reaching 110 (now 100.23) are “all plausible but ultimately, unsustainable targets - When will it end? Our best guess remains sometime in the summer.

I expect continue volatility toward higher mortgage rates today.  The markets continue to bet on higher growth with President Trump's new growth policies.