Once again, I am getting this update out Sunday night instead of the usual Monday morning. A lot of things happened this week, some good and some bad, but mortgage rates hardly moved, though they did tick just a notch lower by week’s end.
The week was off to a good start with mortgage backed securities having their best day of the week. With no economic data released, the headlines were what got mortgage bonds rising. As the data flowed, there was a mixed bag of news, fueling confusion more than fears. As the week went on, mortgage bonds managed to inch higher every day, with their momentum dwindling by week’s end.
News during the week that played against bonds started with Consumer Confidence beating expectations. Then came the ADP report showing a better than expected jobs front. Chicago PMI beat expectations and the ECI was in line, both of which put pressure on bonds. The week ended with the Jobs Jamboree and non-farm payrolls beating expectations, helping bonds to flatline on Friday.
But the news favoring bonds won the week, and that encompassed speeches and even the signing of HR 3221, the “Housing and Economic Recovery Act of 2008.” As far as data goes, the mixed bag presented more economic issues, such as a disappointing GDP and the highest inflation rate in 4 years. Another jobless claims increase certainly helped as well.
Once again, mortgage bonds managed an uptick, but they again failed to mount a solid enough rally to break the long term trend. As we head into this week, we are going to load up with market shaking data right from the get go with the Fed’s favorite gauge on inflation, the PCE report. And let’s not forget it is Fed day again on Tuesday and the question will be whether or not the Fed has the balls to raise rates finally. Consensus is they will hold again, with more “talk” of raising rates later this year.
Here is the breakdown of the week’s data flow:
- Monday: PCE (8:30), Personal Income (8:30), Personal Spending (8:30)
- Tuesday: ISM Services Index (10:00), FOMC Meeting (2:15)
- Wednesday: Crude Inventories (10:30)
- Thursday: Initial Jobless Claims (8:30)
- Friday: No Data
Certainly we will see if bonds can break the trend and start a long term rate movement lower. Looking at the charts, there are obstacles they will need to overcome, though. Stochastic indications are in the middle with what appears to be a negative crossover occurring. Adding to that, bonds have failed to break through their 50-day moving average for the second time in the last few weeks. Moreover, the long term trend remains pointed towards lower prices, leading to higher mortgage rates.
As the week starts, I am holding that locking stance, at least until bonds can “break free.”
There’s a Fed policy meeting about to happen, and news reports say they won’t be raising rates, but what they say after the meeting may trigger some change. You think?
Ling,
Chances are that the Fed will not raise rates, and their wording will not likely change much, meaning they will talk about raising rates later this year.
I am hoping today’s PCE data, which showed increased inflation again, will get them to just bump the rates at least a notch, which will help the bond market. For now, bonds have again faltered as I expected based on the charts.