Mortgage Rates Moving Slightly Higher This Morning

Mortgage rates are moving slightly higher so far today, as there has not been any follow-through from the heavy selling of equities on Wednesday. No continuing selling but equally little buying. Yesterday, the indexes ended better but were well off their intraday highs as the DJIA traded +115 but ended +56.  AT 11:00AM this morning, we see the DJIA up nearly 150 points, while MBSs are a negative 8 and the 10yr is where it opened at 2.25%.

Washington politics remains the subject for markets - impeachment talks from media and political opponents, witch hunt comments from the President. Special prosecutor that comes with kudos from everyone. In the meantime, kind of out of the media focus, Congress is continuing to work on various issues.

President Trump now out of the country, the buzz should subside somewhat today. There are no data points today, but we do have two Fed officials, Bullard from St. Louis and Williams from SF. Given the recent turmoil, how will they respond? The Fed is likely to increase rates in June, but at the same time the long-end of the Treasury curve is expected to decline in yield - flattening the yield curve between 2s and 10s, the spread between the two now just 94BPS. Big money is making a huge bet that Fed tightening will slow the economy and noting that inflation fears are not increasing. Higher short-term rates and the developing view that those Trump campaign pledges will be delayed much longer than thought a few weeks ago.

The Fed is in a tight spot, as they want to increase rates but seeing underlying economic fundamentals beginning to soften (Ford, GM and other automakers beginning to lay off workers, big box retailers cutting jobs and closing stores, advancing AI also removing jobs).  Forward guidance from a number of companies that have reported strong earnings lately has been on the cautious side, ebbing geopolitical tensions coming and going. In one sense the Fed should increase rates rapidly as some Fed officials have noted - the central bank must create room to stimulate an economic slowing if it occurs later this year. In the other sense, if economic growth increases as the Fed currently espouses the increases would be expected to keep inflation in check and keep the Fed from falling behind.

The US dollar strengthened a little yesterday after continual declines since the beginning of this year. This morning the dollar back under pressure continuing its five-month trend.  Oil is testing $50 and today's Oil Rig Count will have an impact, but more important is the OPEC extension of production cuts as their committee is reviewing proposals right now, and I am sure we will have lots of "leaks" on the discussions. OPEC meets next Thursday.

We are looking for mortgage rates to settle a bit today after a very volatile week. With no new economic data due out today that can move mortgage rates, and the political issues subsiding for a bit now, all we have are the two Fed speakers.