Mortgage Mike’s Daily Rate Commentary

After touching new all-time high levels on the S&P 500, stocks are now in a risky position.  This is the point they hit a couple weeks back and immediately retreated lower, helping improve mortgage interest rates in the process. Although I believe it was a technical move to the downside, media pundits blamed the pessimism on the Trump/Russia news. Since the potential impact to that ongoing saga has not improved and stocks are once again at all-time high levels, it will be interesting to see how the media spins another drop if stocks do in fact fall. Once again, this would be a technical move that would be driven by investors desiring to cash in on recent gains and take some chips off the table.


Minutes released yesterday from the federal Reserve’s most recent FOMC Meeting finally provided clarity as to how the Fed plans to reduce its inflated balance sheet.  As we anticipated, it will be a tapering of the reinvestment of proceeds from current investments owned by the Fed as they are paid back to the Fed. Because both mortgage backed securities and 10 Year Treasury Notes have fixed terms, the unwinding will take many years and will start out slowly. As a result, we will see upward pressure on mortgage interest rates when they slow their reinvestments. However, it won’t be as dramatic of an increase as if they were to sell their holdings to aggressively wind down its balance sheet. This is as good of news as the bond market could hope for.


With bonds remaining trapped in the same sideways channel with little significant improvement, we will maintain our locking bias.

According to CNN, President Donald Trump is lawyering up with private attorneys that will represent him ahead of the pending testimonies that could create more troubles for his administration in the months and possible years to come.  The battle over whether his administration had illegal ties to Russia to assist in a Trump victory during the 2016 election appears likely to overshadow any progress President Trump makes in his role as Commander in Chief.  Although the word “impeachment” is thrown around the media, there are few high up government officials willing to even bring up the subject. However, according to CNN, the Trump administration is proactively researching the legalities surrounding the impeachment process. We can only assume that there is some level of fear that the imminent testimonies of former FBI Chief James Comey and others could produce more chatter regarding the subject.


Meanwhile, the stock market continued to climb higher, and is now sitting just below all-time high levels.  Clearly un-phased, stock investors show little concern that the Russian chatter will slow Trumps ability to push through tax reform, healthcare reform, and the proposed budget cuts announced yesterday.  However, many experts believe that each of the three proposals have a low probability of passing anytime soon, if at all.  There seems to even be a lack of support among fellow Republicans who don’t feel that President Trumps addenda is in alignment with the desires of most Americans. Nonetheless, the entertainment factor of watching all sides of the political spectrum pipe up regarding ongoing issues seems more entertaining to many than a nice dinner out followed by a romantic movie. So, sit back, enjoy some popcorn and watch as events unfold.


With mortgage bonds more likely to fall in face of a strong stock market, we will maintain our locking bias.

Stocks are again proving to be the Honey-Badgers of the investment world, as they don’t seem to care what happens here at home in the US or around the rest of the world for that matter. They just climb their way higher, looking to establish new record highs in a world of political and terror unrest. Luckily, the bond market is again proving to be the more sensible of the two competing investment worlds, with bond prices remains high in this world of unknowns and volatility. Given that tax reform was one of the primary catalysts to propel stocks to current levels, it seems that the realization that it will not likely happen anytime soon, if at all, should cause investors reason to pull back. But no, a honey-badger doesn’t care. They’ll sacrifice their own life for the sake of one enjoyable meal.


The Trump Administration stirred additional controversy yesterday with the announced $3.6 trillion cuts to government to reduce the US government’s role in society. The cuts will mainly impact the poor, recent college graduates and farmers.  Trump’s proposal is self-proclaimed to balance the US budget in 10 years. However, many republicans in the House and Senate call the bill dead on arrival. Even Senate Republican Leader Mitch McConnell said that he expects the Republican led Congress to largely ignore the bill, stating that it reflected priorities that aren’t necessarily in line with theirs.  None the less, the Administration is fighting for a plan that is for the taxpayers, which will benefit the ones who pay the taxes. It will be another interesting event to watch unfold in our political world.


Bonds remain trapped between a strong floor of support and a seemingly impossible to penetrate ceiling of resistance. With little potential gains to float, we will maintain our locking bias.

The stock market is once again showing its shortsightedness, as prices have nearly regained all the losses they experienced last week. At this point, stocks are in striking distance of challenging all time high levels once again. As I mentioned in one of last week’s updates, I don’t believe that stocks have yet to be overly fearful of the issues surrounding Trump and his potential ties to Russia. Had that truly been a concern, stocks would not have set new all-time highs even after the brunt of last week’s controversy hit the wires. The mid-week move lower seemed to be more of a technical move which often follows new record setting days when investors cash in a portion of their holdings to take some chips off the table and enjoy their winnings.  It’s not to say that the Trump / Russia issue doesn’t have the ability to cause stocks to fall.  It felt more like the media was looking for an excuse to blame the dramatic drop in stock indexes. Since the issue with Trump is no better now than it was last week, clearly stock investors have yet to be truly deterred. 


Despite the strength in the stock market, mortgage bonds are holding up well.  With today having no significant economic reports scheduled for release, we need to pay special attention to the technical outlook.  There is a strong floor of support just beneath current levels.  However, that could easily be penetrated if stocks continue to climb higher.  With the seemingly impenetrable ceiling of resistance not too far above current levels, there is minimal room for rates to improve. 


Given the lack of room for improvement, we will maintain our locking bias. 


Stocks are climbing higher once again today, essentially erasing the significant losses experienced on Wednesday between yesterday and this morning.  This has driven the cost of mortgage interest rates a bit higher, as the ceiling of resistance discussed in Wednesday’s update proved too strong to penetrate.  With bonds now trapped between a strong floor and a seemingly impossible ceiling, the technical picture looks interesting.  Although we could see bonds make a break higher in the days to come, we are more likely to see the opposite happen. 


As news of the ongoing drama surrounding President Trump’s rough week in the White House continues, investors continue to watch the stories as they unfold.  In prepared remarks before House and Senate lawmakers, Deputy Attorney General Rod Rosenstein stated that he felt it was the right move for President Trump to fire FBI Director James Comey.  His writings sharply criticized Comey’s handling of the probe into Hillary Clinton’s use of her private e-mail server.  This briefing comes on the heels of President Trump’s first national trip since the inauguration.  He is clearly hoping that next week will be a bit friendlier to his administration, and to have more positive news for the media to report on. 


Given the strong ceiling of resistance not too far above current levels, we will maintain our locking bias. 


After a terrible run where the Dow shed a total of nearly 1500 points, stocks are pointed higher so far this morning.  Today’s move higher comes on the heels of Brazilian stocks falling nearly 10% today as news of a scandal involving newly elected President Michel Temer hit the wires.  It was reported that President Temer gave his blessing to attempt to pay a potential witness in exchange for their silence in the country’s biggest-ever graft probe.  Given that Brazil makes up approximately 7.4% of the emerging market index, this will impact investors here in the US who have a share of their holdings in the currently popular emerging market segment. 


Here at home in the US, President Trump is also under pressure, as a special prosecutor has been assigned to investigate potential collaborations between the Trump administration and Russia in last year’s election.  Although President Trump assures the public that there is nothing to hide, his actions may show that he attempted to hinder a potential investigation.  If that’s the case, many will question his motives and assume there is something to hide.  As this story continues to unfold, we could see volatility within the stock and bond markets continue. 


With bonds facing the most significant ceiling of resistance at the moment, we will continue yesterday’s locking bias change of stance. 


As discussed in yesterday’s update, the stock market finally reached a point where it was unable to sustain the record levels it achieved yesterday.  As a result, stocks are having a terrible day today.  Financial pundits are blaming the continued troubles facing the Trump Administration as the main reason.  However, since this has been an ongoing situation for several days, it seems interesting that this would cause markets to fall just one day after they reached record high levels.  It could be that investors ignored this issue and finally realized it could hinder future growth.  However, more than likely, investors are still blind to political risks and the stock fall was more of a technical move after hitting new record high levels yesterday. 


Mortgage bond prices are now back near the highs they have been since the markets experienced their free-fall last November.  In fact, we have made several attempts to break above this point since then.  Unfortunately, each attempt was met with a fairly significant drop in bond pricing, which drove mortgage interest rates higher in the process.  Therefore, although bonds are performing extremely well today, it will take a significant force to bonds to break above this level.  Further complicating this is the 200-day moving average, which is just a hair above this strong level of support.  Since breakouts above a 200 DMA average rarely happen, we can’t plan on today being the day. 


With bonds at a level of extraordinary resistance, we will switch to a locking bias to take advantage of the recent pricing improvements. 


Mortgage bonds continue to move higher this morning, once again breaking above their 25-day moving average.  With another slow economic reporting news day, investors seemed to be watching to see where stocks go from here after the S&P 500 tested a new record high in early morning trading.  Given the current news headlines continually rocking the political world from day to day, it’s a bit of a surprise to see stocks performing as well as they have been.  Usually, this type of chatter would create uncertainty within the markets and cause stocks to retreat in reaction to the political volatility.  We will have to see if this eventually catches up and causes stocks to pull back. 


Stocks are still inflated following President Trump’s proposed tax reform plan announcement a couple of weeks ago.  Although this will be a tough sell to many in the Senate and Congress, investors are still hopeful.  Given the battle ahead, we feel it’s unlikely that this will pass in 2017.  With the next mid-term election in 2018, there is a strong chance that Republicans will lose some of their seats as our country looks to add more balance to the equation.  Therefore, they have limited time to make their case.  If this plan does eventually pass, it will essentially eliminate the benefit of having a mortgage to an estimated 25 million Americans due to the increase in the standard deduction rates.  On the flip side, it will be of great help to those who currently rent. 


With stocks facing a tough ceiling of resistance, mortgage bonds could continue to benefit.  We will suggest floating if bonds do not retreat below their 25 DMA.  Should that happen, the safe play will be to lock. 


Weaker than expected inflation and Retail Sales data has pushed mortgage bond prices once again above their 50 and 100 day moving averages. Volatility within bond prices has been elevated lately, with prices moving above and below critical levels without experiencing much resistance at times.  Overall, volatility is not a good sign within any market, as it tends to show a level of uncertainty held in the minds of investors. When this happens, institutional lenders and day traders exaggerate movements with preset trades to buy or sell to take advantage of quick profit opportunities. Although a good thing for those making the money, it creates a level of uncertainty for those needing to make decisions on locking an interest rate. Greed often keeps people waiting too long, and then the panic forces the decision to lock as prices make sharp downward movements. This creates an unhealthy environment for the masses.


Consumer inflation via the Consumer Price Index was reported this morning, showing that inflation only increased by 0.2% in the prior month. Although still a healthy increase, this month’s report caused year over year rates to move down to 2.2% from last month’s reported 2.4%.


Retail Sales were also lower than anticipated, coming in with a month over month increase of 0.2% compared to the market’s expectations of 0.4%. The year over year rate also dropped from 2.0% down to 1.9%.


Overall, these numbers fell short of expectations, and are partially the reason mortgage bond prices are higher this morning.


With bond prices now above their 50 and 100 DMA, there is no need to immediately lock. We suggest watching the markets closely and floating as long as prices continue to climb.

Mortgage bonds continue to struggle this morning, even in the face of a falling US stock market.  The negative sentiment has pushed bond prices below their 50 and 100 day moving averages, which has held rates from moving higher over the past six weeks.  Now that we are beneath this critical level of support, we can expect to fall to the next floor of support.  Further, the levels that once served as floors will now be ceilings of resistance that will make it more difficult for interest rates to improve from current levels.  Overall, there is an abundance of negativity in the bond market which can quickly lead to continued moves higher in mortgage interest rates. 


News of the firing of FBI Chief James Comey is now showing signs of wear on the hopes of US investors.  Political pressure on both sides is heating up, creating an even broader divide among those who support President Trump and those who don’t.  The acting head of the FBI, Andrew McCabe, contradicted the White House assertions that the agency’s rank-and-file had lost confidence in Comey.  In response to a question at a Senate Intelligence Committee hearing this morning, McCabe stated, “I can tell you Director Comey enjoyed broad support in the FBI and still does to this day.”  This statement is adding fuel to an already heated subject.  Since this issue could bring about more problems for the Administration, it could continue to wear on the stock market over time. 


With bonds now beneath support, we will maintain our locking bias.