Mortgage Rates Face Pivotal Week

Mortgage rates are trending sideways this morning after we had a volatile week in regards to mortgage bonds.  Thus far, we have no change in the bond or mortgage markets, as the stock indexes are trading a little bit lower after its surge last week. 

Yellen and crew made it very clear (and the markets actually listened after the exact same message for three straight weeks) that they are on track for a March rate hike provided that the economy continues on its current path. After last week's block buster manufacturing, services, and Consumer Sentiment reports, only one thing stands in the way between now and next week's FOMC meeting and that is Big Jobs Friday. We will get the Unemployment Rate and the Non-Farm Payroll data but the bond market will be focused on the Average Hourly Wage data. Any monthly reading at or above 0.2% or a year-over-year reading at or above 2.5% will "seal the deal" in the market's minds of a rate hike next week.

We are supposed to get a revised travel ban/immigration order this week that will exempt green card holders and Iraq. But more importantly, the GOP is supposed to release their Obama Care fix. The key with that is what tradeoffs will they make in terms of tax policy (as far as bonds are concerned).

The European Central Bank will have their policy statement and interest rate decision on Thursday and It will be interesting to see how their bias changes given that our Fed is poised to raise rates. The bond market is keen to know that that influences their asset purchase program, etc. This also goes to the unclean political future of the leadership of German, France, Italy and Spain with a few of those countries potentially leaving the Eurozone.  The People's Bank of China (PBOC) will have their key interest rate and policy statement and will also get key economic data like CPI, while Japan will get an important GDP release this week.

The technical analysis remains bearish and will not likely change.  Rates are going to edge higher as long as the Fed is poised to continue to increase rates this year.  Still a strong market belief the Fed will move three times this year, but based on the economic performance and inflation concerns.  President Trump and Congress will play a key role this year with the promise of tax cuts and all, but will any of it get accomplished soon? It will take longer to get these done than what equity markets are currently expecting, and thus my expectations are for a pullback in rates – but as I have always stated, that is the mindset of a loan officer – and maybe a few economists out there as well.

This is a pivotal week. The biggest domestic event is Friday's Average Hourly Data. If it is at 0.2% or above, the MBS market will more fully price in a rate hike next week. But until Friday, MBS will be reacting to the Chinese and ECB rate decisions. From a technical perspective, MBS are still "treading water" just above a significant support level.  We expect a volatility this week due to the important data denoted above.