Friday Market Wrap 1/8/16 - China VS Employment
The market place is ending the week fighting against itself. We saw a pretty calm week with mild improvements to interest rates, but nothing to write home about. What's really interesting is what's happening with the stock market, and how it's affecting (or actually, not) the mortgage market.
For months you've heard that rates on mortgages will be heading up, and this week offers a glimmer of some truth to that, even as rates have come down. The stock market got crushed this week on news that things aren't looking too hot in Chinese markets, and what would normally be rally-causing news in the employment numbers coming in looking quite stellar, the DOW has continued to drop. Typically, a flight from stocks and the volatility we're seeing there would lead to a flight to the safety of mortgage bonds, but today (and most of this week), that hasn't been the case, at least to the extend that would normally be expected.
Could this be upward pressure on rates as a large supply of Treasury notes & bonds are set for auction next week? Perhaps. More likely, though, is that despite what the market IS doing, it's clear to see what the market WANTS to do, and that is drive mortgage rates up. While we've seen moderate improvements, it's been on the heels of drastic stock losses, a continuing oil slump, and bad news out of nearly every corner of the world, geopolitically speaking. Chances are, it wouldn't take much positive news to throw mortgage bonds into the red - resulting in higher mortgage rates.
The good news for mortgage bonds is that with today's great employment numbers, rates have showed very minor improvements (with China and the stock selloff to thank), so around the world, things are not looking great. That said, global events also leave the world with a LOT of room for improvement - economically, and geopolitically, and it likely won't take much good news to reverse the recent gains made in mortgage bonds and push rates higher. For that reason, my advice is to lock in the recent gains made, because we can't be sure how long they'll stick around.