Monday Market Commentary January 26th, 2010: Where Mortgage Rates Are Headed

by Alex Stenback on January 26, 2010

Yes, I know it is Tuesday.  Offline events precluded publication yesterday.  Mea Culpa.

Last Week:
The mortgage market had another nice (if choppy) week with a lot of behind the scenes technical battles being fought.  Stocks struggled somewhat, while most economic reports of note posted lukewarm readings.

As a result,  benchmark 30 year rates managed to hold on to their recent improvements, perhaps improving by .125%, depending on whose rate sheets you are looking at.

This Week:
A full economic calendar will cover all the bases this week, with benchmark measures of home sales/prices, inflation, and the economy at large.  Remember always that lack of inflation and poor economic news generally help mortgage rates.

There’s also a little thing called a Fed Meeting and policy announcement that might be worth keeping an eye on.

Highlights:

Home Sales:  Not traditionally a data set the bond or stock markets pay much attention to, but the “Real Estate recovery = economic recovery” notion has been a big driver of stocks (especially) in recent months.  Money flowing in and out of stock market often is at the expense of bonds, so stock market action can (but does not always) impact the direction of rates.

Yesterday’s Dec Existing home sales report posted bigger than expected losses, driven by expiration of the first time buyers tax credit, (which still exists, but was not extended until many buyers had rushed to close by the end of November.) Case-Schiller this morning tells us that home prices in November simultaneously rose and fell.  On Wednesday, Dec new homes sales are expected at 370K

Economy: 4th Quarter GDP, and Chicago Purchasing Managers index stand out, both print Friday.  GDP is expected to show 4.5% growth in the fourth quarter – A surprise in either direction could impact rates. 

Chicago PMI is a broad business barometer using activity in Chicago as representative of the national picture. Chicago PMI has been trending higher, so a moderate increase is expected and probably priced in.  A downside CHI PMI surprise could help rates.

Inflation:  The GDP Deflator (also Friday, with GDP) measures how much of GDP can be attributed to price increases, and will give a read on inflation – expectations are for a non-threatening number here, but markets are HIGHLY tuned to the spectre if inflation, so anything higher than expected could send mortgage rates higher, and quickly.

Speaking of inflation, the Employment Cost Index also prints Friday.  The ECI, is the broadest measure of labor costs – expectations here are also for a tepid figure, but anything showing labor costs spiking will set of the inflation alarms all over Wall Street and could send rates higher.

Fed Meeting: You know the drill here.  Fed will announce no change to rates, and release a policy statement where the Fed gives a short summary of economic conditions and their monetary policy outlook.  The statement will then be forensically analyzed for any minute shifts in language as investors look for signals as to what the Fed might do next.  Though unlikely, any hint of the Fed getting hawkish on inflation would not be a good thing for mortgage rates.

This Week’s Full Econocalendar [Barron's]
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Watching Mortgage Rates: Follow the reports above and other rate and real estate related news by joining me on Twitter: http://twitter.com/Alex_Stenback

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