Locking bias

After facing a rough day yesterday, the US stock market is slightly positive in early morning trading.  This is not good for mortgage bonds, which were unable to make any reasonable gains even when stocks were falling sharply.  The 25 day moving average continues to hold back interest rates from improving.  If bonds are also having to battle a recovering stock market today, the chance of any reasonable gains in mortgage bonds will be small. 

According to ADP, employers added 179,000 to the US economy in the month of July.  This is a decent report that exceeded the market’s expectations of 165,000.  Therefore, the market now has more reason to be concerned ahead of Friday’s Bureau of Labor Statistics (BLS) report.  Following June’s blockbuster report, many investors will sit on the sidelines in fear of being burned by a stronger than expected reading.  Therefore, we can anticipate an increased level of volatility in the next three trading days.  With support nearly 50 points beneath current levels, this is a valid reason for concern as interest rates could easily be forced 1/8% higher should the market continue to fall. 

With volatility and uncertainty continuing to drive the markets, we will maintain our locking bias.