Mortgage Rates Still Volatile - But Not Moving Much

Mortgage rates are moving sideways so far today as we have had a soft open in the bond and mortgage markets.  Amazing is that stock indexes continue to improve.

Early this morning, we learned about MBA mortgage applications were down 2.6% overall, purchase apps -1.0%, refinance apps -5.0%. The big new was when ADP reported private jobs increased 235K against forecasts of +210K.  However, September ADP jobs originally reported +135K was revised to 110K. The two months together about what most have thought.

Two other data points were the October ISM manufacturing index expected at 59.5 from 60.8, the index dipped to 58.7 - still very strong. September construction spending was thought to be 0.0%, as released +0.3%; yr./yr. construction spending +2.0% down from 2.5% in August. The reaction did improve MBS prices a little and the 10yr note yield at 2.38%.  Currently, at 11:00AM, we see the 10yr at 2.36%

Today is the day that Republicans were to release the tax cut package, but that is not going to happen today, as it has been pushed back to tomorrow. The delay is to allow members to deal with differences over the tax treatment of retirement savings accounts and a deduction for state and local tax payments. That has been a bee under the saddle since tax cuts were first discussed. Trump wants a tax bill passed by Thanksgiving - so far none of Trump’s key legislative initiatives have passed. Also, we are expecting the announcement of his choice for the Fed chair.

This afternoon, the FOMC policy statement at 1:00PM. No concern that the Fed will increase rates, but how the Fed frames its outlook and comments about inflation (or the lack thereof) will be key. Friday markets get the BLS employment report - 325K jobs expected after declining 33K jobs in September.

Will stocks ever decline again? Up almost daily.  Nothing bothers that market—a mania. Cannot argue with the reality, as I have been looking for a correction for three months now, but the indexes continue to make new all-time highs. Often technical analysis wants to see a Bearish divergence between the Cumulative NYSE Advance/Decline Line versus Blue Chips, with the NYAD declining as the S&P 500 rallies, as an important pre-condition early warning before major tops occur. This has been missing for months and years. Good news for investors currently, and any bearish trades have ended badly for those who want to sell the top. The reason why I care because what happens in equity markets directly impacts interest rates.  Until a big correction happens, the bond and mortgage markets at best will continue to trade in a tight range with little chance of improvements.

Overall, we had some good economic numbers this morning, but mortgage rates are moving sideways. This is good news. Hopefully, it can hold. I expect mortgage rate volatility to be relatively low ahead of the Fed meeting. After that, we could see some volatility depending on the guidance.