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Monday, February 1, 2016

Mortgage Bond Market Analysis - Mixed (Weak) Data Monday

Happy Monday.  We have a few data points to start what will be a big week with Jobs data being the focus.  Last week I wrote (as I've done several times over the last year) about how the consumer confidence levels are all very high especially when you consider that the economy is still very weak and consumer spending isn't happening.  Usually when consumers are confident, they show it by spending.  Well Personal Income was at .3 for December, in line with the previous reading and higher than expectations (.2).  The problem is that in spite of a bit more income and a high level of consumer confidence, Personal Expenditures were 0 vs. expectations of .2 and previous of .3.  Core Personal Consumption Expenditures were also 0 vs. expectations and previous of .1.  The ISM Manufacturing Index came in at 48.2, .2 above expectations but any reading below 50 is contractionary so this is not good.  On Wednesday, in addition to ADP Private Payrolls, we get the ISM Non-manufacturing Index which has been above 55 the last few readings and is expected at 55 this time.  The service sector is our greatest employment sector by far in the US so we need strong readings here.

From a technical standpoint the FNMA benchmark bond is 10 basis points below the 2nd resistance level of 104.67.  The RSI is overbought as you might expect after last week's run of 5 consecutive days in the green.  Oil is still the driver and both the stock and bond markets are taking their cues from what oil is doing.  Oil is down today and both the stock and bond markets are down, though the stock market is getting hit harder.  Typically with data like we got and oil being down, we might expect bonds to be up but there is probably some profit-taking going on.  T. Boone Pickens thinks that oil hit its bottom at $26.15 per barrel and said that based on past history, he thinks it's very possible that oil will double in the next 12 months.  Additionally, some experts in the financial markets are saying that we may not get another rate hike until 2017 because of the economy.  If the Fed stands pat for the rest of the year, that will help keep mortgage rates low but if oil rises like Picken's thinks they might, that will cut into people's discretionary income which they are already hesitant to spend which will further slow the recovery.

I think the market will be on the quiet side as it awaits the various data points relating to jobs / employment.  Because of this, I don't think there's much upside to floating and I would certainly lock ahead of the jobs data since good numbers here will have a negative impact on interest rates.  Contact me if I can help with anything - 702-812-1214 or 801-853-8720 (  Make it a great day.

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