Thursday, January 14, 2016 - Article by: Bart Castelli - Homestar Financial Corporation NMLS #70864 -
Mortgage rates spent the second straight day without moving any lower. While that may sound like a bad thing, it should be noted that rates certainly have not been in a hurry to move higher. Not unexpected, it was only a matter of a day or two that we would see this - markets do not go one way forever even with the outlook for lower equity prices ahead. The US Treasury market will continue to improve as long as inflation is way off and the rest of the world is continuing add stimulus. US rates have good support with the strong dollar and rates in other regions are lower than the US. Like the stock market, prices will see pressure if the equity markets continue to rebound.
I do not discount that the equity markets may have a couple of days of recovery but that will not change the outlook for lower prices. Still a lot of money waiting to short the indexes once a rebound runs out of fuel. Even after the big declines there are those that see the declines as buying opportunities. As I have been noting, the volatility in US and global financial markets will remain high.
Treasury sold $13B of 30yr bonds this afternoon that met with strong demand again. This was not as strong as yesterday's sale of 10yr bonds, but still met with good demand.
This week has been barren with no key economic reports. Tomorrow however there are five key data releases that will be closely watched. At 7:30AM - December retail sales and December PPI, at 8:15AM December industrial production and factory use will be out, and then at 9:00AM - November business inventories. In the afternoon we will have the U. of Michigan mid-month consumer sentiment index will be out, expected at 92.6 unchanged from the final Dec reading.
Two weeks from tomorrow the FOMC meets again. There is no chance of another rate hike - but the meeting has major emphasis. The increasing bearish global economies and the decline in equity prices has a number of elements including what the Fed thinks, even though the Fed has a strong recent track record of misses. Many assets are overpriced, and as the Fed normalizes interest rates these prices will continue to fall. It is difficult to know if this will cause widespread financial and economic declines but the low interest rates since 2009. Since then markets have been artificially inflated, what now for the Fed? Much depends on how global and domestic markets act between now and January 29.
All of the various and detailed technical indicators remain bullish, however we can't warn enough that lower interest rates will be accompanied by interday swings.
In summary, rates hovered nearly unchanged today as stocks rallied. "Not losing" in this case (given stocks' gains) is bond positive in my eyes, particularly since there was tepid demand for the 30 year treasury auction. The $20 question seems to be when and how far global equity markets will continue to contract. Until that's answered, hard to say where we go from here. I am locking up loans within 15 days of closing, watchfully waiting on those further out for the moment.
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