Stocks are heading lower for a second day in a row. Of course, this falls in line with oil prices that are once again dropping as well. The stock market is currently sitting right on its 25 day moving average. Given the momentum in the market, it seems unlikely that this floor will hold much longer. Although it may not be today, at the moment, stocks appear poised to fall back into the trading range that matched two year lows for the market. This would be helpful to mortgage interest rates which are tied to mortgage bonds that compete for the same investment dollars as stocks. Therefore, as stocks fall, mortgage rates are often the beneficiaries.
Continued slow economic news is driving mortgage bonds higher this morning. They are nearing the top of the trading range that they peaked at a couple of weeks ago. Friday will be the big day, as the market will learn the status of GDP and a current read on inflation. Since the Personal Consumption Expenditures (PCE) happens to be the Fed’s favorite gauge of inflation, this report could certainly move the markets. That could be exactly what mortgage rates need to help them break lower. However, stronger than expected readings on either GDP of inflation could cause rates to spike higher. Therefore, we can anticipate volatility ahead of the release.
Given that bonds remain near the top of a sideways channel; the risk of floating is high. Therefore, the safe play will be to maintain a locking bias.