17 Mar Not the time to risk floating
The stock market is again showing its resilience, as it is has again pushed above its 25 day moving average. The S&P 500 currently is about 20 points away from its all-time high from last week. Of course this move higher in stocks will add additional pressure to the bond market which is currently in the red about 10 basis points. Further, the 10 Year Treasury Note yield is now pushing up against its 200 day moving average. A break above this would signal weakness in the bond market and would also add upward pressure to mortgage rates.
The Empire State Manufacturing Survey for March was released this morning, showing a reading of 5.61, which was below expectations of 6.5. However, Industrial Production for January showed that month over month production was up 0.6%; beating estimates of 0.3% and much better than last month’s -0.2%. Capacity Utilization was at 78.8%, which is also higher than the 78.6% anticipated.
The US is said to likely be taking action against Russia today in response to their aggression in the Ukraine. With Russia being the world’s LEADING exporter of oil, the US is rumored to be planning to add significant oil reserves to the market to drive down oil prices, which will in turn hurt Russia. Well, one thing if for sure; Russia won’t just sit back and allow us to hurt them financially without retaliating. It is likely that Russia will retaliate by selling US Treasuries, of which they hold about $150 billion worth. If they dump treasuries on the market, they could drive US interest rates higher, making our cost of borrowing higher and hurting us in the process. In essence, if we dump oil on the market to drive oil prices higher, they may dump treasuries on the market to drive interest rates higher in the US. This would cause a tremendous headwind to the US economy and would severely hurt the housing market. The stage is now being set, and the chess pieces are being put into position. We will be watching this closely and keep you posted as developments happen.
Now that the weather has thawed, stronger economic conditions could likely follow. As the economy heats up, mortgage rates will move higher. Now of course there is also the small issue of a missing plane that some believe was hijacked and could be used for a future terrorist plot. If that theory turns out to be true, that could help move interest rates lower. However, in light of such issue posing imminent threats to our economy, we will suggest the safe play of locking your interest rate. The longer term outlook of interest rates appears for them to be making a move higher. Now is not the time to be taking risks by floating.