Mortgage Rates Look to Move Higher, September 16, 2010

Action by the Bank of Japan yesterday and the possibility of further action to support the yen could move mortgage rates today.  Additionally, a series of economic reports could move rates.

Mortgage Rate Trend Direction:     Up

Economic Reports/Rate Impact:    Producer Price Index, 8:30 AM ET, Moderate Rate Impact

                                                             Jobless Claims, 8:30 AM ET, High Rate Impact

                                                             Philadelphia Fed Index, 8:30 AM ET, Moderate Rate Impact

Key News:                                         Additional Japanese Currency Intervention, US Pressures China on Yuan

Summary

Late yesterday mortgagage rates rose after the stock market reacted to additional intervention by the Bank of Japan (BOJ) to weaken the value of the Yen.  Additional efforts by the BOJ could impact mortgage rates today.  Also, three reports will be released today that will have a direct impact on markets and rates.  Today, I expect rates to continue the slow rise we have seen over the past 9 days.

Impact of economic reports

Mixed economic data today is likely to allow other trends to dominate the direction of mortgage rates today.  First, jobless claims showed continuing improvement this past week, perhaps providing evidence of better overall jobs environment.  Second, the Producer Price Index showed a slightly higher than expected increase, signaling that inflation may be accelerating.  Inflation is a double-edged sword in the economy as it inflates asset values, but also makes it more difficult for businesses and consumers.  Finally, the Philadelphia Federal Reserve's Index of manufacturing activity in its region showed a fairly substantial drop from last month's levels, reflecting similar data from other regions of the country over the past few weeks.

Impact of international or political events

The key events today center on currency values. First the BOJ purchased a large quantity of US dollars late yesterday in an a second effort in as many days to reduce the value of its currency.  For Japanese exporters a highly valued yen makes their goods cost more, thereby reducing demand for their goods.  With the Japenese economy struggling, the BOJ is attempting to increase the attractiveness of goods manufactured in Japan.

Also on the currency front, US Treasury Secretary Timothy Geithner is pressuring China to allow the value of its currency the yuan, to rise faster.  China has pledged to permit the yuan to rise in value, yet has limited its rise to a very modest increase.  It is very difficult for US or other countries' manufacturers to compete against cheaper Chinese goods due to the low value of the yuan.  Geithner also stated that the US was exploring other "tools" it might use to persuade China to act more quickly.  A trade dispute between these two largest economies would not be good for the global economic situation.