Mortgage Rates Continue to Look Better

Mortgage rates continued lower today, matching the best levels in just over a month.  July income weak, inflation based on PCE weak and shows no inflation, July auto sales weak, June construction spending weak, the July ISM manufacturing index expected to be lower, was lower but what markets were expecting. 

The 10yr note saw its yield drop to 2.26%, the lowest level in the last eight sessions. Meanwhile no stopping the stock market, the indexes higher today. The Federal Reserve’s preferred measure of inflation, the price index for personal-consumption expenditures, slipped in June on an annual basis to 1.4% from 1.5% in May. July total auto and truck sales were at 16.73 million, one million lower than July 2016.

Prior to the data today, the 10yr jumped to its support we have talked about numerous times to 2.32% with the resistance at 2.28%, but markets moved through it today.  Tomorrow July ADP private jobs are thought to be at 175K.  Friday’s estimates for the BLS employment data - NFP jobs +180K, private jobs +175K, unemployment 4.3%, average hourly earnings +0.3% (yr/yr +2.5%).

No stopping the stock indexes, maybe traders bought into Alan Greenspan’s comment today that there is no bubble in stocks, the bubble according to Greenspan is where the bubble is brewing. Greenspan, the Fed chief that after the financial crisis in 2008 when questioned in Congress said he could not anticipate a bubble until it happened. Greenspan, a man deserving great respect back does not make much sense now. The bond market is holding even in the face of constant increases in equity markets.

Not likely markets will improve again tomorrow unless ADP data is weaker than forecasts, but it still might be a good idea to float and see what tomorrow brings.  Beside the soft data today, the US made a point to North Korea flying bombers over the peninsula and testing our missile defense system successfully knocking out a test rocket today. US bonds are holding, interesting we do not hear much of a logical reason from the talking heads and media guests. The fact is, interest rates are holding while money continues to flow into stocks, which is not a normal condition.

In summary, it will be up to the week's remaining economic data to determine if there is any more life left in the rally.  Each of the next 3 days holds important reports that could help or hurt.  In general, the strong start to the month makes the broader outlook more neutral - perhaps even positive - whereas it made more sense to be defensive last week.  Further strength tomorrow would go a long way toward confirming a positive shift.