Keep an eye on the stock market

Mortgage bonds are again powering higher this morning, fueled by a falling stock market and somewhat friendly economic reports.  Stocks investors appear nervous at these lofty levels, with the S&P 500 currently down 18 points so far this morning.  Stocks are now sitting right on their 50 day moving average.  A break below this level would be healthy for the bond market, and would provide additional power to fuel a continued push lower in interest rates.

Initial Jobless Claims for the week were reported at 297,000.  This is well below expectations of 331,000, and 24,000 below last week’s claims.  Most importantly, this is the lowest report since May 2007.  We will see the impact to jobless claims when the May hiring report is reported in early June.

Consumer Price Index (CPI) was reported this morning, meeting market expectations at 0.3%.  CPI less food and energy was reported at 0.2%.  This reasonable report was the key to improving mortgage rates, and has helped fuel bond prices higher.

Industrial Production for April came in tame at 0.6%.  This is below last month’s increase of 0.9%, and also below market expectations of unchanged.

With mortgage bonds continuing their upward momentum, we will continue to suggest a floating bias.  However, they appear stalled at the current ceiling of resistance.  Failure to break above this level may indicate a short term correction lower.  Keep your eye on the stock market.  A continued fall will help push rates lower, but an upward correction will likely come at the expense of higher interest rates.