Mortgage bonds have taken a turn for the worse, with the charts pointing towards upward pressure on mortgage interest rates in the short term. This purely technical outlook does not have a lot of reason behind the prediction, other than the technical outlook shows that bond prices have reached a ceiling of resistance that bond prices are unlikely to surpass. Based on the news, we received the Consumer Price Index (CPI) report this morning that shows that inflation remains tame. This could help reduce the likelihood of the Fed continuing to hike short term rates. Although many experts, such as Merri Lynch, predict three rate hikes in 2019, I see either zero or possibly one. In fact, I think the Fed will need to reduce rates as we head into 2020.
The stock market continues to bounce wildly from up to down. After a strong opening yesterday, stocks lost all their gains and closed lower for the day. This morning, so far, they are up strongly. I don’t see a reason for stocks to climb much higher in the short term, especially with continued political pressure against President Trump continuing to build. As the White House prepares for an impeachment battle as the Democrats take the majority in the Senate, this could hinder the momentum the Trump administration has had towards investor friendly policies. That will hurt the stock market and likely help improve mortgage interest rates. Combined with a pending recession and a slowing housing market, 2019 could be an interesting year.
We will maintain a locking bias.