03 Sep Pressure at the bottom of the channel
The S&P 500 jumped higher out of the gate to new all-time highs following reports that Russia and Ukraine have agreed to a cease fire. However, it was later reported that no such agreement is in place, but talks are underway with high hopes of reaching an agreement. Is Russia now acknowledging that they are fighting this battle? So far the they have denied that they are a part of a battle with Ukraine…. If an agreement is reached, that will continue to boost stock prices and weaken bond prices, pressuring interest rates higher.
The Mortgage Bankers Association reported that purchase mortgage applications fell another 1% last week, and are now down 12% on a year over year basis. The weakness happened while mortgage rates decreased to their lowest levels since June of 2013. The slowdown in home purchases could further continue as we move back into the colder months of winter. Hopes for a stronger than expected winter purchase market could be fueled if mortgage interest rates continue to improve, getting some of those who lost the hope of low rates after they spiked higher in July of 2013.
At this point, mortgage bonds have remained in the channel they have ridden. However, they are now pressuring the bottom on the channel, and will hopefully not fall beneath. The ADP employment report was pushed back until tomorrow due to the Labor Day Holiday. Friday will be the release of the Bureau of Labor Statistic’s reading on the job market. If the report is weaker than expectations, that could help boost bonds to the top of the channel. In the meantime, we are going to maintain our locking bias.