Mortgage Rates Surprise, September 17, 2010

Important data on inflation will be released this morning and may move mortgage rates.  Also, political comments by Speaker of the House Nancy Pelosi have the potential to effect mortgage rates for some time to come.

Mortgage Rate Trend Direction:     Down

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:                                           Comments by Speaker Pelosi

Summary

Yesterday brought higher mortgage rates after a market reversal late in the day.  Producer price increases gave markets a surprise.  Inflation in the economy is typically associated with growth.  Today consumer prices will be in focus with the release of the Consumer Price Index.  Further signs of inflation could definitely move markets.  Based on unusual early trading patterns in the mortgage-backed securities (MBS) market (higher yeilds, despite higher stock market futures), I expect mortgage rates to be lower at initial pricing this morning.  Though as is typical on Friday's, MBS yeilds tend to move back to neutral by the end of the day.  

Impact of economic reports

The Consumer Price Index (CPI) was widely expected to move markets today.  After the incease in producer prices yesterday, analysts were expecting that we might see evidence of inflation for US consumers.  The actual core CPI came in unchanged which seems to have perplexed traders.  Both deflation and inflation worry analysts and traders, obviously for different reasons!  What these wizards of Wall Street can't deal with is lack of a clear direction, which may explain this morning's apparent confusion in early trading.

Impact of international or political events

Political analysts call the period just before an election the "silly season" because of the silly things (usually blatantly partisan) said by politicians during this time.  Yesterday Speaker of the US House of Reprsesentatives Nancy Pelosi made such a statement.  She said, “If we had not won re-election and intervened, we would be in a depression,”  Oh brother!  Regardless of your political persuasion, perhaps we can all agree that all that's bad is not the fault of the other guys, and that all that's right is not due to our brilliance.  What we all must hope for after this upcoming election is that power will be sufficiently divided to force our elected representatives to work together to find workable solutions to our most intractable, long term financial issues.