Mortgage Rates Open a Bit Higher From Last eek

Mortgage rates opened a little higher today after the bond market had a wild ride last Friday.  Prices jumped, and yields fell on the reaction to a decline in June retail sales and weaker than expected June CPI. The reaction sent the 10yr note yield down to the very key near term resistance at 2.28% and MBS prices up 38BPS from Thursday’s close. The rally lasted until mid-morning before renewed selling drove the 10yr back to 2.32% and MBS prices ended just 5BPS better on the day with most all banks having to reprice lower from the initial pricing levels.

This morning in early trade had MBS prices up and the 10yr at 2.31% at 11:00AM.  The July New York Fed manufacturing index (Empire State) was thought to be at 15 from 19.8 in June, as reported 9.8. The index is charged with a lot of volatility, and most do not take it too seriously, as NY is not known as a manufacturing juggernaut.

This week is thin on data with the key report on Wednesday, June housing starts, and permits, both expected to show improvement. (See calendar below).

China reported stronger growth than expected, not a direct influence here in the US but from a global perspective, many equity market investors like hedge funds and big money managers take it as continued “evidence” that global growth will continue to push US stock indexes higher. I believe the DJIA has the potential over the next three months to move to 23K area before a massive equity market decline. Presently there are few that believe my view, but that is one reason why I expect it. Volatility is almost non-existent indicating investor complacency; that is always the condition at a topping pattern. The economic growth is not going to get much better - housing is still historically soft, Congress and the Administration are on a course of complete gridlock with mid-term elections closing in each day that will continue to feed more inaction. Corporate earnings and forward forecasts are likely to be too optimistic.

If you are looking for lower interest rates, look to November. In the meantime, I do not think rates will decline much now if stocks continue to attract investment dollars. Technically, the bond and mortgage markets failed Friday to break the 10yr. resistance at 2.28% -  still tilting bearish based on what I am reading.