I am very happy to say I was wrong about mortgage rates last week as they managed to dip overall versus climbing. In other good news, I am actually writing this week’s update from the comforts of my desk, a rarity in recent history. So what will shape up in the markets this week? Let’s get down to business.
Last week was one filled with few things to move the markets beyond news and technicals, though the Fed announced MBS purchasing helped get the “party” started. As the week progressed, MBS pricing went to retest their top of the trading range they have been stuck in for some time now, with brief breakouts to either side, and that resistance has held strongly, even this morning. Beyond the Fed buying, which has actually dropped off some, Retail Sales missed its expectations, helping mortgage backed securities, but inflationary fears are creeping back and were justified by an increase in the Core CPI, though the markets are not reacting too much as it is still fairly tame for now (remember this is a lagging indicator of inflation). Nevertheless, likely the biggest driving force was the lack of Treasuries to flood the markets last week and took a lot of pressure off of MBS pricing, allowing mortgage rates to improve some during the week.
This week is fairly light on the market movers also, but Treasury announcements later in the week, along with a couple of key data plays, could light a fire under MBS, or burn their bridges. With a shortened trading day on Friday, volatility could be increased this week, especially as it draws to a close and volatility sometimes leads to breakouts from trading ranges. Here is what lies ahead…
- Monday: Housing Market Index (1:00), 3-month T-Bill Auction (1:00), 6-month T-Bill Auction (1:00)
- Tuesday: Housing Starts (8:30), Building Permits (8:30), 4-week T-Bill Auction (1:00), Gary Stern Speech (1:15)
- Wednesday: MBA Purchase Applications (7:00), Crude Inventories (10:30), FOMC Minutes (2:00), Charles Plosser Speech (7:00)
- Thursday: Jobless Claims (8:30), Leading Indicators (10:00), Philadelphia Fed Index (10:00), Treasury Announcements (11:00), Money Supply (4:30), Charles Plosser Speech (7:00)
- Friday: No data, market closes at 2:00
As you can see, the week starts off and ends with essentially no driving forces from fundamentals, so stocks and technicals will lead the way, along with news. The best chance for data to send the markets in either direction are from the FOMC Minutes and the Philly Fed. Whatever direction these two reports set up will likely see and exaggerated effect on Friday. Keep an eye on oil as well as with oil climbing recently, inflationary pressures return as well. One additional note to add is that the Fed’s favorite gauge of inflation will not be seen in May as April’s data will be released on June 1, followed by May’s data on June 26.
Looking at the charts, we see overhead resistance being tested several times in the last week and it is holding firmly. At the same time, stochastics have moved to middle ground and are facing a potential negative crossover. What does that mean? For now it looks like any retesting of resistance will most likely fail to break though and thus mortgage rates will hold steady, even increasing slightly as they fall back in their trading range. That is unless data being released this week can ignite a fire under them, which I do not believe will happen.
You know, seems like a lnog time since we've had some 'crisis' in the banking sector or the economy. Seems like the boat has steadied, and we've got the recession and the problems firmly behind us. So, when do we start treating things like before? I mean, look at mortgage rates and inflation and other indicators purely based on market forces, without thinking about what the FED or Congress or some government body is planning to do.
Do you think we will see inflation rising signicantly before the close of 2009?