Mortgage Rates Fluctuate in Narrow Band , July 22, 2010

Mortgage Rate Trend Direction:     Neutral/Up

Economic Reports/Rate Impact:    Jobless Claims, 8:30 AM ET, Moderate Rate Impact

                                                             Existing Home Sales, 10:00 AM ET, Low Rate Impact

                                                             Leading Indicators, 10:00 AM ET, Moderate Rate Impact

Key News:                                         US Companies earnings, European Economy

Summary

We have a lot of data to digest today in our effort to project the direction of mortgage rates for the day.  Each day recently has seen professional traders opinions change virtually by the hour.  The stock and bond markets, including the mortgage rate influencing mortgage-backed securities market, have bounced from positive to negative and back again.  It is a cycle that has almost become the norm.  Of course, as we have discussed, this is very good for traders, who make money placing trades (orders to buy or sell).  For the the consumer and even lenders, it is simply confusing, as no discernable direction can be anticipated.  The good news is that the overall movement has been in a relatively small range, and all in the vicinity of record low mortgage rates. 

With positive earnings news and good economic news from Europe mortgage rates are expected to rise at initial pricing this morning. However, with more economic reports expected later this morning, and with additional testimony from Fed Chairman Bernanke, we may see changes throughout the day.

Impact of economic reports

Traditionally the Jobless claims numbers have had a fairly strong influence on the markets.  Yet with the numbers of people unemployed being so high, with the impact of the end of the temporary employment of Census workers and with expected temporary layoffs during summer months at many manufacturing firms, the Jobless Claims report has lost much of its influence.  This is a good thing since today the report showed a fairly large increase in first-time claims.

In a similar way, the existing home sales report also used to be a reliable guage of the state of the US housing market.  However, with the numbers of homes on the market due to foreclosures and the negative impact on home values that has resulted, the ability to forecast any meaningful long term trends with month-to-month data is greatly diminished.  This is also potentially good for markets today as expectations are for another drop in existing home sales.

Analysts and traders seem poised today to take their cues about the economy from different data.  The Leading Indicators report due to be released later this morning provides a broader measure of US economic trends.  Corporate earnings reports show real results for companies in this economy.  Two earnings reports this morning have given analysts reason to be more positive.  Caterpillar and UPS both released positive earnings and improved outlooks for the balance of 2010.  These two stocks are considered  good economic "bellweather" (indicators) because the companies provide goods or services to other businesses and therefore are an indicator of the strength of the broader business environment.

Impact of International or political events

The European Purchasing Managers Index showed that private sector activity was much more positve than expected.  With the string of bad news lately from Europe, this news provides some needed encouragement.