Mortgage Rates Respond to the Market, September 2, 2010

Mortgage Rate Trend Direction:     Up

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

                                                              Productivity, 8:30 AM ET, Low Rate Impact

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

                                                              Factory Orders, 10:00 AM ET, Moderate Rate Impact

Key News:                                           European Central Bank Action, US Retailers Sales Reports

Summary

After yesterday's blowout to the upside in the US stock market and increase in mortgage pricing, today offers another opportunity to set a course for September.  Today their will be several economic reports released.  By far the most important is the weekly Jobless Claims report. Productivity, pending homes sales and factory orders data may combine to offer energy to move the markets.  Based on expected results from these reports, I expect mortgage rates to rise modestly at initial pricing this morning.

Impact of economic reports

The weekly initial Jobless Claims report showed a decline this morning, but only slightly.  Productivity actually dropped more than had been anticipated, signaling a lack of strength in the overall economy.  The pending homes sales report really doesn't offer much unknown data.  The factory orders report is expected to show a slight uptick in orders, meaning that any surprise in either direction could move markets after 10:00 AM ET.

Retailers in the US have been announcing their sales figures for August over the past couple of days.  Many retailers have posted better than expected results, indicating that back-to-school spending has been fairly positive.

Impact of international or political events

Today the European Central Bank announced that it is leaving its key interest rate unchanged.  They also announced their forecast for economic growth for the European Community for the balance of 2010.  The growth rate is expected to be very similar to that in the US announced last week by the Fedral Reserve.  The meaning behind thse announcements is that we remain in a period of weak global economic activity.  This should tend to keep mortgage rates in historically low territory.

However, I feel obligated to point out today that there are two possible events that could dramtically alter mortgage rates in the next several weeks.  First, there is the possibility that the dramatic increase of investments in bonds, particularly US Treasuries, could unwind as investors seek higher potential returns.  This could happen suddenly, but more likely over a period of weeks.  Secondly, any major action by the government such as quantitative easing (purchasing government bonds or mortgage-backed securities) or a major refinancing program announcement from Fannie Mae and Freddie Mac could move mortgage rates lower, quickly.