Locking bias

The first batch of important economic news reports of the week were released this morning.  Most importantly, we received a reading on the Fed’s favorite gauge of inflation, the Personal Consumption Expenditures (PCE) report.  The headline figure decreased from 1.9% down to 1.7% on an annualized basis.  The Core Rate, which strips out food and energy prices also fell, dropping from 1.6% to 1.5%.  Although the drop was anticipated, it’s important to note that inflation has been moving lower as of late.  It seems the initial Trump impact on the markets caused a spike in inflation as consumer confidence soared higher.  However, that hype has since died down, along with oil prices which are helping reduce overall inflation numbers here in the US.

It is Jobs Week, which will begin on Thursday when ADP will release their estimate of new hires for the month of May.  Then on Friday, the Bureau of Labor Statistics will release their estimate, which is the more important release of the two.  The market is anticipating 170,000 and 185,000 in each report respectively.   These potential markets moving reports could set the tone of mortgage interest rates in the near term.  However, we would likely need to see a terribly weak report to give mortgage bonds the strength to break through the next ceiling of resistance.  Since that has been in place since last November, it will not be an easy barrier to pass.

Bonds are still hanging in their tight sideways channel.  Given the low odds of breaking above their 200-day moving average, we will maintain our locking bias.