Big Changes in Mortgage Rates Ahead?, June 21, 2010

By:: David Coster - MortgageLoan.com

Mortgage Rate Trend Direction Up

Economic Reports/Rate Impact No economic data of significance released today

Key News Chinese Currency Valuation, European Debt Issues

Summary

The week ahead looks like it may bring big changes to mortgage rates. Today the markets will be reacting to the Chinese government’s decision on its currency valuation method and news from Great Britain regarding how it plans to deal with its debt. From early market activity, US stocks are sharply higher and bond prices are sharply lower, meaning that mortgage rates will likely start the week higher than they finished last Friday. The question is how high will mortgage rates go?

Impact of Economic Reports

No government economic reports are due to be released today. Tomorrow figures for May’s existing home sales will be released, while on Wednesday we will see May’s new home sales results. Also on Wednesday, the Federal Open Market Committee of the Federal Reserve will meet. Observers don’t expect any change in interest rate policy. On Thursday the Census Bureau will release its report on Durable Goods Orders. Wrapping up the economic reports of the week will be the Commerce Department’s final Gross Domestic Product numbers for the first quarter of 2010. None of the reports released this week are expected to move rates significantly. However, any surprises could impact rates.

Impact of international or political events

The decision by the Chinese government to end its practice of matching the valuation of its currency (the Yuan) to the US dollar will be the primary driver of rates today, and perhaps for the week ahead. While the degree to which China will allow the Yuan to fluctuate away from the US dollar is uncertain, any increase in the value of the Yuan is likely to increase demand for US products in China. This should help to strengthen the US economy which in turn is likely to drive US stocks higher and mortgage-backed securities lower. This will increase mortgage pricing to consumers.

This coming weekend, the G20 meeting of the 20 largest economies in the world will be held in Toronto. One of the primary topics of this meeting will be the on-going debt crisis in Europe. Preliminary news coming out ahead of this meeting will have the ability to move mortgage rates. Most observers expect comments that reassure markets (leading to higher stock prices/lower bond prices). This too, could push mortgage rates higher.

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