09 Sep Rates Pressured Higher
Mortgage bonds are having a terrible day today, breaking beneath their 25-day moving average. Bonds are currently riding along another floor of support, which is one that has been in place for well over a month. If this floor also breaks, mortgage rates will move to multi-week highs.
The move lower in mortgage bond pricing has aligned with a strong move higher in the US stock market. However, since the rally in stocks has largely been based on supposed good news regarding the trade war with China, it’s just a matter of time before we see the tables turn once more. In the meantime, stocks have a clear run to where they could test all-time high levels. With the strength of the technical favoring stocks, we need to take a cautious approach with mortgage rates.
The Federal Reserve is set to announce their interest rate decision next Wednesday. At this point, I fully expect the Fed to lower rates by ¼%. We will receive an update on consumer inflation via the Consumer Price Index on Thursday of this week. If consumer inflation numbers are still tame, a Fed rate cut will likely not cause mortgage rates to move higher. However, if the CPI report shows that inflation is on the rise, a Fed rate cut will be viewed as adding additional upward pressure on consumer inflation and could create higher mortgage interest rates. We need to watch the CPI numbers closely.
Given the upward pressure on mortgage interest rates, we will maintain our locking bias.