21 Aug Locking bias
Well, the stock market did it again, with the S&P 500 achieving a new intra-day high this morning. The strength in the stock market has been fueled by companies like Apple and Home Depot who are experiencing strong growth in their stock values. As money flows in to the stock market, it drains cash out of the bond market. This in turn causes upward pressure to mortgage interest rates. If stocks are able to make a decisive move higher, they will be unchallenged by overhead resistance and will be free to determine what new highs they can achieve.
Initial Jobless Claims for last week were released this morning, with only 298,000 new claims reported. This was stronger than the 300,000 expected, and much better than the prior week’s upwardly revised 312,000 new claims. Claims continue to improve and are trending lower. Although a good sign for the job market, it is not good for interest rates. The increase in new hires hasn’t had the dramatic impact to the housing as the market had hoped for. However, much of this is due to the many people who had foreclosures, short sells and bankruptcies due to the economic downturn. As time goes on, more and more people will be eligible to purchase homes. This pent up demand will be pouring into the housing market as they become able to qualify for mortgage loans.
Yesterday, the meeting minutes from the Fed’s July 30th meeting were released. There were no real surprises. However, the Fed did talk about the strengthening job market as well as the timing of increasing short term interest rates. Although the labor maker is improving, there is still “slack.” As this continues to improve, the Fed will move to push short term interest rates higher. Given the improving path, this could happen sooner than expected.
Mortgage bonds are trying to break above resistance of the 25 and 50 day moving averages. However, the strength of the stock market will continue to add pressure to interest rates. We are going to maintain our locking bias for now. Hopefully, mortgage bonds have stabilized and can find support.