Market Comment - Week of February 15th, 2010
Mortgage bond prices fell last week pushing mortgage interest rates slightly higher. The early part of the week saw a reversal of the recent flight to quality buying of US investments as talks hinted of a Greek bailout by Germany. German Chancellor Merkel dashed those hopes late in the week causing turmoil in the European Union. As a result global investor funds returned to the US bond market. Rates improved Friday morning, which helped recover some of the earlier losses. Unfortunately rates still rose overall for the week by about 1/8 of a discount point.
The consumer price index Friday will be the most important release this week. The other inflation data and the shortened trading week may also factor into mortgage interest rate changes. The typical back and forth movements of stocks and bonds will also likely take place as uncertainty continues to permeate the financial markets.
| Economic Factors | | Economic Indicator | Release Date Time | Consensus Estimate | Analysis | | Presidents Day | Monday, Feb. 15, 2010 | None | Important. Extended holiday weekend may result in volatility when trading resumes Tuesday. | | Housing Starts | Wednesday, Feb. 17, 2010 | Up 0.4% | Important. A measure of housing sector strength. Weakness may lead to lower rates. | | Industrial Production | Wednesday, Feb. 17, 2010 | Up 0.8% | Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. | | Capacity Utilization | Wednesday, Feb. 17, 2010 | 72.2% | Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates. | | Producer Price Index | Thursday, Feb. 18, 2010 | Up 0.7%, Core up 0.1% | Important. An indication of inflationary pressures at the producer level. Lower figures may lead to lower rates. | | Leading Economic Indicators | Thursday, Feb. 18, 2010 | Up 0.5% | Important. An indication of future economic activity. Weakness may lead to lower rates. | | Philadelphia Fed Survey | Thursday, Feb. 18, 2010 | 17.5 | Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates. | | Consumer Price Index | Friday, Feb. 19, 2010 | Up 0.3%, Core up 0.2% | Important. A measure of inflation at the consumer level. Lower figures may lead to lower rates. |
Globalization Economic globalization is the increasing interdependence of national economies through trade, finances, and technology. While economists debate the pros and cons of globalization, the fact remains that globalization is not new and continues to expand.
As a driving force in the global economy, the US often benefits when foreign economies struggle. A prime example is the concern of a Greek economic collapse. Unlike a corporation, a country cannot file for bankruptcy when they can't make debt payments. One remedy in situations like this has been restructuring the debt, which is mired in uncertainty for investors. The bigger global problem is the fear that a default by one member of the European Union could ripple throughout all the other eurozone countries. In times like this, investors often move funds to safe havens in what is called a "flight to quality." This is exactly what we saw Friday morning as US debt instruments saw an influx of foreign investment. Bond prices rose which caused mortgage interest rates to fall that morning. From a short-term perspective that is great for homebuyers and those refinancing. The long-term effects are less certain. A reversal could easily take place if the EU can prevent a default. This is a prime reason to take advantage of rate dips when they occur.
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