Mortgage Rates Pull Back as Stocks Improved

Mortgage rates started out lower this morning as bond markets responded favorably to the important jobs report.  While the headline job growth was stronger than expected (typically bad for rates), wages came in much lower than expected and were revised lower for the previous report as well. 

This morning I said one or the other market (stocks or bonds) would capitulate before the end of the session. The reaction to the January employment report improved the bond market and the stock market. Good news for both, as the bond market saw some gains on the weaker average hourly earnings in January. No inflation in wages as had been thought would occur, less inflation will keep the Fed on the fence. The stock market rallied on the employment report due to stronger job growth than had been thought. Goodies for both but one had to give - the rate markets succumbed as stocks continued to improve.

Donald Trump has begun the unraveling of Dodd/Frank, one of the worst pieces of legislation ever fostered on businesses. Dodd-Frank legislation, which includes prohibitions on financial institutions trading for their own benefit, heralds the biggest regulatory shake-up in six years.

Technicals have 10yr note resistance at 2.43% for the immediate view, as it dropped to 2.42% this morning but buying quickly died - took a few hours though before selling emerged and pulled the 10yr up to 2.50% and closed at 2.47%. The price action (technicals) in the stock indexes less negative and supported by lower inflation views. 

Next week is Treasury quarterly refunding - new 10s and 30s will be auctioned along with 3yr notes, the combined total $62B, 3yr on Tuesday, 10yr on Wednesday, and 3 yr on Thursday. Also, next week Fed officials are free to resume their chatter, after being gagged the week before the FOMC meeting we are treated to resumption of news media reporting every sentence from numerous Fed people - save us please. Data next week is sparse - nothing on Monday. Tuesday the NFIB Small Business Optimism index, December consumer credit. Friday January import and export prices and U. of Michigan consumer sentiment index. None of it has the power to upset traders and investors.

I cannot get away from the bearish outlook for interest rates - fundamentally or technically. Although for almost a month mortgage rates have been well contained the path is for higher rates, to change that outlook would require a black swan event of some sort, and that is not possible to anticipate. Presently the over-whelming consensus within markets - stocks, bonds domestic and foreign is US growth, the Fed expected to increase rates, in Europe and Japan their economies and inflation rates are increasing. Every country trying to keep the currency from increasing to foster better exports. Cannot find much now that markets are not optimistic about. Me on the other hand have numerous concerns but they are way off the current outlook of the huge majority thinking.

In summary, I continue to favor locking if within 30 days of closing.  Following weak earnings in today’s NFP report, bonds managed to move higher.   Sadly, the gains evaporated by early PM amid some Fed inflation rhetoric.   Bottom-line, we are still in the recent range, just bouncing within it.  Good time to lock for those floating.