We will continue our locking bias

Investors will be listening for the word, “Patience” at the Fed Press Conference on Wednesday.  This will indicate that the Fed is at least three months away from a rate hike.  If that is the case, the markets can relax for the moment without fear of a surprise in the near future.  That would likely help both the stock and bond market in the near term, which could provide the boost we need to break above the overhead resistance that has prevented mortgage rates from improving.  However, if that wording is removed from their language, markets will take that as a sign of an imminent rate hike, which could send bond prices lower.  That would drive mortgage interest rates higher.

Volatility in the stock and bond markets continue to be elevated, with stocks facing significant swings from one day to the next.  Oil prices have faced similar swings, with the past week being brutal to oil producers.  Prices fell nearly 10% in the past week alone.  This drop could continue to create havoc in the energy sector of our economy.  As prices move lower there will be less investment into current oil rigs which will lead to a significant loss of jobs.  Oil reserves are now at levels not seen in many decades.  With consumption declining and supply increasing, we will likely see low prices at the gas pumps for a while.  May forward thinking economist look at new car gas mileage requirements, as well as the increase in electric car sales, and predict reasonable prices indefinitely.  We will have to see how this plays out, as a drop in oil prices can further slow inflation and hold mortgage rates down.

With mortgage bonds right beneath the overhead resistance that bonds have attempted to break above and been pushed lower now 11 times, we will maintain our locking bias.  If bond prices gain the strength to break higher, we will switch to a floating bias.  However, we have been down this road too many times to know how it will likely end…