In early market trading this morning mortgage-backed securities are trading at the same price as they finished the day yesterday. This means than rates on purchase and refinance loans will start the day where they ended yesterday—still close to all-time lows. Will the rates last throughout the day? Will the low rates last for days or weeks into the future? Answer: unknown.
Today finally contains some real economic data to guide traders. Import prices fell meaningfully over the past month thanks primarily to a drop in fuel costs. On the negative side, the National Federation of Independent Businesses, an association of small businesses, released its “Small Business Optimism Index” which found confidence in the economy had dropped for the sixth consecutive month among small business owners. The gridlock in Washington over debt and fiscal matters was cited as the chief reason for the pessimism.
Frankly today’s trading and rate movement activity is still going to be determined by events in Europe rather than US economic data. Two major European banks, in a move eerily reminiscent of US banks in 2008, released statements denying that they were having any sort of liquidity problems. French Bank BNP Paribas issued a statement to deny a report in the Wall Street Journal that it was having trouble obtaining US dollars due to the unwillingness of other banks to trade with them. Also, the CEO of another French bank, Societe Generale, gave an interview in which he asserted that his bank had no solvency concerns and that their exposure to the troubled debt of Greece, Italy, Portugal and Spain was limited. In 2008 many US banks, including infamously Lehman Brothers, assured investors and the public that they had no similar issues as well.
Tomorrow is the first of two big days where, baring new European developments, the attention of the markets will start and stay on the US economy. Producer prices and more importantly retail sales figures will be released in the morning. Expectations are for no change in PPI and for a drop in retail sales from last month. This should push rates lower as it will indicate further weakening in the US economy and stimulate further discussion of further quantitative easing by the US Federal Reserve.
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