01 Mar Locking bias
Rising oil prices have helped push the S&P 500 above a critical ceiling of resistance. As long as stocks are able to remain above this critical level, they have a clear shot up to the next ceiling which is about 25 points higher than current levels. This has pushed mortgage bonds lower, adding upward pressure to interest rates. Mortgage bonds are now sitting right at the bottom of the sideways channel they have been riding within since early February. If momentum in the stock market continues to grow, this could cause bonds to break below support. That would be a bad sign for the near term direction of interest rates.
One force pressuring stocks higher is that the New York Fed president and current voting member, Bill Dudley, said that the Fed is thinking about backing off of rate hikes for a while. This is likely a trend that will continue with other Fed members as they look to unwind previous expectations set of four rate hikes in 2016. Economic data overall is still very weak. With other central banks cutting rates in less than two weeks, a rate hike now would just add further strength to the US dollar which would create additional headwind for US companies selling goods and services overseas. For that reason alone, a rate hike now would be dangerous to the US economy.
With bonds appearing weak enough to fall beneath support, we will advise a locking bias.