Mortgage Rates Lower Surrounding Political Headlines

Mortgage rates surged significantly lower today, as a part of a broad-based market movement following a political scandal that began taking shape yesterday afternoon.  You can choose your preferred media outlet to digest all the details, but the issue surrounds communications between Trump, former FBI Director Comey, and the potential for the details of those communications to be demanded by House Oversight Chair Chaffetz. 

Then you have Putin’s remarks that he has transcripts or tapes on the meeting with Russian diplomats he would share if Trump wants them, the realization that those tax cuts, spending increases, de-regulation, border taxes are going to be pushed back and may not happen this year.

The political climate, the media and the Administration seeming to be adrift - the very overbought equity markets. All combined today to set off a lot of selling of stocks and movement into treasuries in a safety move. And it was not confined just to the US, all markets sold off, all sovereign debt declined. This was bound to happen, it was long overdue - not just one black swan, but a whole flock of them. Now, the $1 trillion-dollar question, is today a one-off, or is it the beginning of a protracted sell-off in stocks and drive lower in rates? I cannot answer that now, as we need to give markets a couple of days – and hopefully we will have the answer.

Gold continues its increase. The dollar continues to fall to the lowest level since the election last November. Risk has increased, known as risk on. Worst day for stocks since last September.

I do not believe yet that this is the big drop in stocks we expect later this year, but do expect the indexes to work lower for a week or two. The 10yr destined to move to 2.17%, the first technical support and the low a month ago.  After that technical support is at 2.10%, then 2.00%. Markets now over-reacting to what the media is pumping i.e., impeachment, not going to happen. Compared to Watergate this is a minor bump. Many comparing this to Watergate were likely still in college or high school - easy to make those comparisons unless you lived through it. We should expect the mantra of a buying opportunity to be echoed over the next few sessions.

Tomorrow we get weekly claims, the May Philadelphia Fed business index, and April leading economic indicators. With the current focus on everything but economic data, the reports should go unnoticed.

In summary, rates are plummeting down toward 6 month lows.  Great right!?  Hmm, not so fast.  If you floated you are certainly ahead of the game but let's not get too excited.  This move seems to be based mostly on recent political headlines surrounding Trump and potential impeachment proceeding.  An impeachment looks like a long shot and I would be worried about a rapid snap back toward higher rates as soon as the threat of impeachment subsides.  CAUTIOUSLY FLOAT – but if you like these rates that we have not seen for a long time – LOCK THEM NOW as we may see a snap back.