Mortgage Rates Respond, July13, 2010

Mortgage Rate Trend Direction:      Higher

Economic Reports/Rate Impact:     Trade Balance, 8:30 AM ET, Moderate Rate Impact

Key News:                                             US Company Earnings

                 Portugal Ratings Cut

                 Greece Raises Money

 

Summary

 

Yesterday was mostly unchanged until a midday spike improved rates, though by the end of the day most of the improvements in mortgage-backed securities that lead to rate improvement had been given back. After the market closed yesterday, Alcoa reported much better than expected earnings and raised guidance for the rest of the year. Markets in Asia were down today, while European markets were up across the board despite very mixed news from two member nations. 

 

Given all the news US markets appear to be swayed more by the positive earnings news. Therefore, mortgage rates are likely to respond with a rise from yesterday’s close when initial pricing takes place this morning (9:45 AM ET-10:00 AM ET).

 

Impact of economic reports

 

The US trade balance report was released this morning and showed a much greater imbalance in trade between the US and other nations, particularly China. This shows that economic activity is not picking up quickly in the US. Despite surprising results in this report, early market activity seems to be discounting its impact.   

 

After the close today, technology giant Intel will report its earnings. Their results will be a key driver for the markets tomorrow.

 

Impact of international or political events

 

Two key events took place in Europe today. First, ratings agencies lowered the ratings on Portugal’s debt by two levels. Second, thirty minutes after the downgrade of Portugal, Greece auctioned treasury bills to finance its debt. The auction was very successful, with more demand than supply, yet the interest rate Greece had to provide was higher than its last similar auction. In general, despite the continuing troubles, analysts are beginning to believe that the measures taken by members of the European Union and the European Central Bank are going to be successful in avoiding defaults.