Current mortgage rates appear likely to make a renewed push toward all-time record lows this morning based on early trading in US mortgage-backed securities (MBS). With little data out of the US today and simply more speculation about the ultimate impact of the general consensus from euro-zone nations last week to pursue a new treaty with tighter fiscal controls, markets will likely remain in a small trading range. However, today may offer the best day of the week for mortgage pricing as new economic reports and a statement following the Federal Reserve Open market Committee (FOMC) meeting this week could push mortgage rates higher.
Tomorrow the all-important retail sales figures for the past month, including the vital Black Friday/Cyber Monday period will be released. Early estimates have indicated that retail sales have been very strong over this period with consensus forecasts calling for a .6% increase. Also tomorrow the FOMC will release a statement following their meeting that some observers believe will include a subtle change in wording suggesting a firmer commitment to keep interest rates low for an extended period. Such a move could help to spur a so-called “Santa Claus rally” through year’s end.
After import prices on Wednesday, the two key measures of inflation the Producer Price Index and the Consumer Price Index will be reported Thursday and Friday and have the potential to move markets. Tame inflation may help to fan the fuel the Santa Claus rally along with three manufacturing related reports at the end of the week that are also expected to be good.
All this focus on the US economy and a potential rally to close the market year could be dismissed by developments in Europe. One of two developments could, in my opinion, refocus investors on Europe and reverse the pressure on mortgage rates. First a major ratings agency could take action against a key European nation (perhaps France), European banks or even the bailout fund established in the last several months to aid troubled euro-zone members. Secondly, domestic dissension in euro-zone nations could provide real hurdles for achieving a deal in which participants would be expected to give a degree of sovereignty over domestic fiscal matters.
For me, despite the modestly negative effect it could have on mortgage rates—I’m pulling for Santa Claus!
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