Mortgage bonds hit the ceiling of resistance we identified in yesterday’s update and were pushed back hard, as they have been the 10 or so prior attempts. So far today, stocks are down significantly which is helping mortgage bonds to stabilize. Bonds briefly poked their head above the 100 day moving average but seem to lack the muster to make a decisive break above. We are hopeful that bonds can break above this at some point. However, until that happens (if it does) we will likely see great volatility with the 100 DMA serving as a significant barrier.
The Producer Price Index (PPI) was released this morning. It showed that inflation in the producer level was reported to be down 0.5%. The Core Rate, which strips out food and energy prices, was also down 0.5%. Both figures were much lower than expectations. More significantly, the year over year headline number fell from 0.0% to -0.6%. This is the first negative 12 month trend in history and not a good sign for the Fed. At this point, an increase in the Fed Funds Rate will even add additional downward pressure on inflation. The Fed is in a pickle at this point. They didn’t anticipate being in a hot job market with very little inflation. This is a perfect scenario for homebuyers.
With news out of Russia that the Kremlin will have a major announcement soon, we can expect volatility in the markets today. If this news is related to the health of President Putin, which we suspect it will, the markets could react accordingly. Until we are able to break above resistance, we will suggest a locking bias.