After a dramatic two week fall in the stock market, stocks have regained most of their losses in the past 7 trading days. The stock market is blazing higher today, with the DOW currently up 156 points and the S&P 500 up 16.58. The reversal higher has been triggered by renewed hope for a resolution with the Russia / Ukraine conflict, as well as a lack of concern that the US will continue escalating troops to fight ISIS in Iraq. Now that stocks have broken above resistance, they appear poised to test all-time highs. This will continue to add pressure to the bond market, which will push mortgage rates higher.
The economic news calendar heats up this week, with tomorrow being an important news day. The Consumer Price Index (CPI) will be released tomorrow and will show the current level of inflation on the consumer level. This is one of the two most important readings on the overall economy that impact mortgage rates (with the second reading being GDP). If the CPI comes in higher than expected, that will certainly add pressure to mortgage interest rates. However, if it continues to show a tame level of inflation, that will help boost bond prices, adding downward pressure to mortgage interest rates.
Mortgage bonds reached the top of a trading channel on Friday and were once again pressured lower. The barrier that bonds failed to break is one that has been unbreakable for almost 14 months. When I say this is a strong barrier, I mean REALLY strong barrier…. As often happens when challenging overhead resistance, mortgage bonds have been knocked back down hard, and are currently testing another floor of support. A break below this level would indicate weakness developing in the bond market, and a likely fall to the bottom of the trading range. We are going to continue our locking bias, as so far hope for continued improvement in mortgage rates is diminishing.