Mortgage rates, after treading water early in the week, were pushed lower (in a very volatile fashion, we note) by a steady stream of negative economic news. We are now seeing conventional fixed rates at or near 5%, with sub 5% rates within striking distance for borrowers willing to pay a point or so.
Weekly jobless claims hitting multi decade highs, the failure in the Senate of the Detroit bailout were among the lowlights in a week where maybe the biggest ponzi scheme ever was exposed.
In better news, the Producer Price Index showed that prices, led by plumeting energy costs, continue to fall – lower prices are conducive to lower mortgage rates. The drop in energy costs likely boosted a better than expected consumer confidence number, and retail sales, though down, were better than many feared.
A full economic calendar, with a Fed meeting and rate anouncement in the middle, will not leave markets short of information to digest and assimilate, and could mean another volatile week for stock and bond markets.
Before we chronicle the highlights, it would be helpful for readers to recall that bad news for the overall economy is generally a positive for mortgage rates. In a very real sense, the worse the economy looks, the better the odds that rates will continue their march lower.
We mentioned the Fed above. The FOMC concludes a two day conclave on Tuesday and will release a policy statement and rate decision. Expect the Fed to trim the benchmark Federal Funds rate by .5-.75%.
More importantly, the Fed may allude to increased “quantitative easing” (remember that term) measures. With Fed Funds rates already super low, there’s not much more they can do with that particular tool to goose the economy; So we may see the Fed increasingly target rates and credit markets not under their direct control (mortgage rates, business credit, other consumer loans, etc.) in an attempt to shake loose some economically lubricating borrowing and spending.
As for the economic calendar proper, Monday’s Empire State Manufacturing Survey and Thursday’s Philadelphia Fed Survey will give a reading the manufacturing sector, which is likely contracting. Tuesday brings housing starts and the consumer price Index, both expected to decline.
All of this is of course set against the backdrop of the Detriot bailout negotiations and a spate of high profile reports from Goldman Sachs, Morgan Stanley and Best Buy.
It will be an interesting week.
This Weeks Economic Calendar [Barron's]
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