Mortgage Rates Hover Near Records, August 19, 2010

Mortgage Rate Trend Direction:     Neutral/Down

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

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

                                                               Philadelphia Fed Index, 10:00 AM ET, Moderate Rate Impact

Key News:                                            Big Merger in US, End of Combat Operations in Iraq

Summary

After yesterday's volatile session in the mortgage-backed securities (MBS) market the expectation today was for clear direction provided by the Jobless Claims report.  With this report providing an unexpected surprise, the volatility has returned to the market this morning.  Analysts are having difficulty making sense of the data and traders unsure of their best positions.  Additional data will be released at 10:00 AM and could determine the ultimate direction of mortgage rates for the day.  Based on current expectations, mortgage rates are likely to open neutral at initial pricing by lenders with a bias toward improvement.

Impact of economic reports

Jobless Claims spiked to their highest level in almost a year providing the clearest possible evidence that the US economy has slowed appreciably.  Expectations were for a slight improvement in this measurement.  Leading Economic Indicators released at 10:00 AM ET will give a broader view of the economy, while the Philadelphia Fed Index will provide a look at the manufacturing industry in the Mid-Atlantic.  Improvement in these two reports was forecast, so any surprise to the downside could lead stocks lower and improve pricing for mortgage rate influencial MBS.

A big buyout in the US has tempered the bad news from Jobless Claims this morning.  Intel, the largest computer chip manufacturer announce that it is buying computer security software firm McAfee.

Impact of international or political events

The completion of the combat mission in Iraq is certainly good news.  We send our thanks and appreciation to the troops and their families for their efforts on our behalf.  

As an economic issue, the drawdown in Iraq is a double-edged sword.  While it will likely lead to a reduction in government spending on defense, it also likely means that tens of thousands of our troops will leaving military service over the next year during and entering a very poor jobs market.