Mortgage Rates Seek New Driver, August 9, 2010

Mortgage Rate Trend Direction:     NeutralUp

Economic Reports/Impact:              No Economic Reports Released Today

Key News:                                           US Companies Earnings, Alan Greenspan Comments

Following Friday's dissapointing Non-farm Payroll Report that showed a surprising drop in employment, it would seem likely that the stock market would continue its downward move as a new week begins.  However, as is so often the case, analysts and traders are always focused on data and events in the present and future rather than the past.  Consequently, based on strong earnings news and the perception that the Federal Reserve will provide reassurance, at its meeting Tuesday, that they will be able to temper the slowing of the US economy.  US stock markets are higher in early trading this morning, while mortgage-backed securities are neutral.  Consequently, mortgage rates are expected to open neutral with a bias toward moving higher.

Impact of economic reports

No economic reports are scheduled for release today.  However, several positive earnings reports have stregthened early stock market activity.  Berkshire Hathaway, Tyson Foods and McDonalds all reported higher earnings and a positive outlook for the balance of 2010.  Berkshire Hathaway's numbers in particular were received positively as it was their Burlington Northern Railroad division that accounted for much of the earnings.  Railroad traffic is considered an excellent indicator of activity in the industrial sector as raw materials move in to manufacturers and finished products move out from them.

Impact of international or political events

We have recently discussed the debate going on in political circles about the extension of the tax cuts that were originally enacted during the administration of former President George W. Bush.  Former Federal Reserve Chairman Alan Greenspan stated in an article in the New York Times over the weekend that he favors the repeal of all of the tax cuts, not just those on the highest earnings.  What is ironic is that it was Mr. Greenspan's endorsement of the tax cuts that is credited with their initial passage in 2001 and 2003.  We will continue to follow this story as it develops over the next couple of months.  Without Congressional action, the tax cuts will expire in January.