Mortgage Rates Poised to Move, July 13, 2010

Mortgage Rate Trend Direction:      Neutral/Lower

Economic Reports/Rate Impact:     Consumer Price index, 8:30 AM ET, High Rate Impact

                                                                Consumer Sentiment, 10:00 AM ET, Moderate Rate Impact

Key News:                                             US Company Earnings

            

Summary

 

Today will be influenced by reaction in the markets to earnings reports from several key financial services companies: Citigroup, Bank of America and general Electric. Also providing guidance will be the release of the Consumer Price Index which provides the definitive look at inflation in the economy. Markets in Europe and Asia have essentially followed the US markets for the past few days so they will not likely provide any direction for mortgage rates today. Based on the available data in early market activity, mortgage rates are poised to begin neutral but pressure to move down is building. Some lenders may release initial pricing late today as they wait for market reaction to the Consumer Sentiment report.

 

Impact of economic reports

 

The key news items affecting market activity this morning are the earnings reports by Citigroup, Bank of America and General Electric. Citigroup’s earnings were much lower than expectations while both Bank of America and General Electric reported earnings better than expectations. Unfortunately all three companies showed weak revenue growth or actual declines, meaning that the earnings reported were due to cost reductions and efficiencies. This could be a bad sign for the future as cost cutting and efficiency generation can only last so long.   

 

The Consumer Price Index showed a decline in overall prices for goods and services in our economy and only a modest rise in “core” prices (excluding food and energy). While a lack of inflation can be good for consumers, it also raises fears of deflation which can make it difficult for companies to make money and can ultimately lead to a recession.

 

It will be interesting to see how the Consumer Sentiment report reflects the general mood of consumers in the US. With low prices, consumers may feel better about the economy. However, the pervasiveness of the unemployment situation and fears for another downturn may be more powerful. Traders will be looking at the this report closely today.

 

 

In Basel, Switzerland an international committee representing banking supervisory authorities from around the world published draft rules that will require all banks to build reserves (save money) during good economic times to ensure that they have sufficient capital during poor economic times. The idea is to protect the worldwide economy from cascading bank failures or the need for bailouts from world governments. This will ultimately help provide stability to the banking sector and the world economy.

 

Are lenders involved in a price war?

 

Later today in our weekly mortgage rate summary we will explore evidence that certain lenders appear to be in a price war, of sorts, to win mortgage business from consumers. Is a price war taking place? If so, why would lenders be pursuing this course right now? Check back this afternoon for my thoughts.