Mortgage Market Review - 5/17/10

This Morning…Monday, May 17, 2010
Today, as has been the case, the potential for volatility will remain extreme. So far in the early trade markets are quiet but very stressed. The euro is currently trading higher and supporting equity markets. No scheduled data points for the rest of the day. As for equity markets, currently bearish and likely to work lower. That said however, the stock market in past periods of softness has always managed to work higher.

Last Week:
Mortgage bond prices rose last week applying pressure on mortgage interest rates. The week started on negative footing when the European Union poured a trillion dollars into efforts to stabilize Greece. Stocks across the globe rallied at the expense of bonds. Fortunately that was short-lived, as traders remain concerned the efforts will not stop future economic turmoil in Europe. Last week’s news confirmed that there is overall consensus that the US is on some type of recovery. The trade numbers showed growth, retail sales were up, industrial production and capacity utilization were up, and initial jobless claims were down. On Friday, bond prices improved and rates dropped, primarily based on continued European problems. These problems are not going to go away any time soon, so look for more volatility.

This Week:
This week, the sovereign debt concerns in Europe will continue to be the focus; the euro currency is collapsing and we expect more of it this week. A weakening euro, or stated another way, the strengthening dollar, reduces the US export trade as US goods become more costly. There are also a couple of important releases this week. Today we already had the Empire State Manufacturing Survey. Tomorrow we have Residential Construction with Housing Starts and Building Permits, and the Producer Price Index. Wednesday we have the Consumer Price Index, to check just how much of the increase or decrease in PPI is being passed along to us consumers, and the release of the April Fed meeting. Thursday is Initial Jobless Claims, the Philly Fed Survey, and Leading Economic Indicators. Friday zip.

EconomicIndicator
Producer Price Index
Tuesday, May 18,8:30 am, et
Up 0.2%,Core up 0.1%
Important. A measure of inflation at the producer level. Lower figures may lead to lower rates.
Housing Starts
Tuesday, May 18,8:30 am, et
420k
Important. A measure of housing sector strength. Larger than expected decreases may lead to lower rates.
Consumer Price Index
Wednesday, May 19,8:30 am, et
Up 0.2%,Core up 0.1%
Important. An indication of inflationary pressures at the consumer level. Decreases may lead to lower rates.
Weekly Jobless Claims
Thursday, May 20,8:30 am, et
410k
Moderately important. An increase in claims may bring lower rates.
Leading Economic Indicators
Thursday, May 20,10:00 am, et
Up 1.2%
Important. An indication of future economic activity. A smaller increase may lead to lower rates.
Philadelphia Fed Survey
Thursday, May 20,10:00 am, et
21.5
Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.

Market Forecast:
Overall, it appears it is going to be another active week for the mortgage market. We have two inflation readings that are very important to the bond market the middle part of the week. Stock market volatility will likely also affect bond trading again this week, so we may see movement in rates several days. The consumer price index Wednesday will be the most important event this week. The housing data, producer price index, and leading economic indicators data may also move the market. Market participants expect the consumer price relatively tame this week. Inflation friendly data may lead to improvements in mortgage interest rates. However, unexpected consumer price spikes may push interest rates higher in the short-term. . If the stock markets remain fairly calm, I would guess the middle part of the week will probably be the most important for mortgage pricing. A cautious approach to float/lock decisions is prudent.

Some Humor: (my apologies…it’s a “blond” joke)

A blonde gal decides to go shoe shopping, and stops in at many fashionable stores with no luck. No one seemed to have what she was looking for, which was a pair of alligator shoes.
After becoming very frustrated with the attitude of one of the shopkeepers, the young blonde declared, “Well, then, maybe I'll just go out and catch my own alligator and get a pair of alligator shoes for free!”
The shopkeeper replied with a sly smile, “Well, little lady, why don't you go on and give it a try?” The blonde headed off to the swamp, determined to catch an alligator. Later in the day, as the shopkeeper was driving home, he spotted the same young woman standing waist deep in the murky water, shotgun in hand.
As he brought his car to a stop, he saw a huge 9-foot gator swimming rapidly toward her. With lightning reflexes, the blonde took aim, shot the creature, and hauled it up onto the slippery bank. Nearby were 7 more dead gators all lying belly up. The shopkeeper stood on the bank, watching in silent amazement as the blonde struggled mightily and barely managed to flip thegator onto its back.
Then, rolling her eyes heavenward, she screamed in frustration, “Darn it! This one’s barefoot too!”

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