Safe play is locking

The highly anticipated economic data releases this morning were all surprisingly stronger than anticipated.  As a result, the stock market spiked higher and mortgage bonds fell lower.  This has pressured the APR of mortgage interest rates higher.  Oil prices also shot higher, which could be the primary reason the stock market is performing as well as it should.  We have talked a lot lately about the correlation between the stock market and oil prices.  The two are now moving concurrently 95% of the time.  This unusual accuracy has created an unhealthy relationship between the two markets, and has made predicting the short term direction of the stock market much easier for day trading investors.    

The second reading on GDP for the 4^th quarter of 2015 was reported to at 1.0%.  This was much higher than the 0.4% rate anticipated and also higher than the 0.7% first reading previously reported.  However, Consumer Spending was revised down from 2.2% to 2.0%.  Overall, this is better than expected, but still shows significant weakness in the US economy. 

The Feds favorite gauge of inflation, Personal Consumption Expenditures (PCE), was also reported to be .01%, which was slightly higher than expected.  Year over year PCE has doubled within the last year, now sitting at 1.3%.  The more important Core figure rose by 0.3%, pushing the year over year number up to 1.7%.  This is much closer to the Fed’s target rate of 2%, which provides reason for concern over the near term direction of mortgage interest rates.

Mortgage bonds broke beneath support and are now sitting just above their 25 day moving average.  This is a dangerous spot for mortgage rates.  If bonds break lower, we will see rates move even higher.  As we wait this out to see what happens next, the safe play will be to lock.