The Ukrainian Prime Minister is claiming that Russian troops have officially invaded Ukraine. This is adding fear to the markets and causing stocks to pull back a little. The S&P 500, which is considered the leading indicator for stocks, once again closed at an all-time high yesterday. This shows that investors continue to brush off concerns of operating in a market without support from the Federal Reserve. As we know, markets have been held up from billions of dollars being invested each month by the Fed through Quantitative Easing. Now that the third round of QE is set to expire, it will leave markets to function on their own without the added support. In each of the two prior expirations of QE, the stock market took major dives. Could this happen once more? If history is an indication, the likelihood is high.
Weekly Unemployment Claims were released today, showing that only 298,000 new claims were filed last week. This is two consecutive weeks of below 300,000 new claims, and a continuation of the trend of lower number of claims. The big report comes next Friday, when the Bureau of Labor Statistics reports job growth for the month of August. The lower level of unemployment claims suggest a strong report.
GDP was reported at 4.2%, which is stronger than last quarter’s 4.0%. Remember, GDP is one of the two most important indicators and influencers of mortgage interest rates. The higher GDP climbs, the more upward pressure we will see on mortgage rates.
Mortgage bonds are right up against overhead resistance. Mortgage bonds haven’t been at these low levels since May of 2013. Therefore, mortgage rates are as better than they have been in the past 14 months. The question is whether they will be able to stay at these low levels. Each time bonds have made it close to these levels, they were quickly pushed back down. If we are able to make a decisive move above this resistance, that would be a positive indicator for the direction of mortgage rates. However, with the risk of being pushed lower, the safe play is to suggest a locking bias. Although a good sign, the likelihood is that bonds will be challenged in the short term.