Friday, April 17, 2015 - Article by: Bart Castelli - Homestar Financial Corporation NMLS #70864 -
Mortgage rates barely budged yet again today despite more volatility in underlying financial markets. It is really interesting to see my trading charts as yesterday's chart as it sits under my chart from today is mirrored in its pattern, of which was the same as I recall the day before. This is the same behavior and part of an even broader trend of minimal movement since the beginning of the month.
US and Global stock markets were tagged today. Not the first time this year, it has become somewhat normal. Every time it appears equities are headed for that 10% correction that has not happened for two years, it has been a buying opportunity for stock bulls. Given the history we can't work up too much interest in the selling today. The 10yr note is still sitting at 1.86% - a strong resistance level. MBS prices are also testing their recent highs in price.
The Fed twisting in the wind - what to do with the FF rates? Too soon and the economy will continue to soften, too late and the Fed worries about inflation increasing rapidly. Fed has no reason to worry about inflation, although wages are creeping slowly higher businesses have no pricing power and it is highly unlikely prices can increase much. The dollar will strengthen on a rate hike adding to less concern on inflation. The Fed has almost single handedly held the economy up, nothing of consequence from politicians since the financial markets crashed in 2008. Fed officials cannot stop talking, mostly because it is their job - but a little less would be welcome and remove some of the daily swings in sentiment.
Beginning to boil now, but how strong a boil is the big question - the never ending talk that the US economy will speed up "next month" is wearing thin. Globally markets are in some deep turmoil. China trying to prick what they see as a bubble forming, and the EU is facing uncertainty. The Fed letting the world know it will increase rates - at some future time that is solely data dependent.
Next week there is not much important data until Wednesday with March existing home sales, Thursday March new home sales, and Friday March durable goods orders. Not much to focus on in the US. Next week will be dominated by foreign markets.
In summary, the 10yr is going out today at its key resistance at 1.86%. After three weeks of narrow trading we are increasingly convinced now that the 10yr and MBS will rally next week. Looking for the 10yr to decline once the resistance level is taken out. As you know our technical work has remained bullish over the last three weeks. The time to rally is now. Germany seems to be in play and the way markets react on Monday is critical for the rally to begin. Stocks took a big hit today, in the past though this kind of decline in stock indexes have been characterized as a buying opportunity - this time should be different. Once the 10yr breaks what some of us believe will be 1.70%, MBS will follow and may drop as much as 200 bps, bringing us even lower mortgage rates. Weigh your risks versus rewards and the word is still be that of a cautious observer and act accordingly.
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