Well, we’ve ended summer trading season and boy was it a wild ride. Often the summer season for the markets is quiet as traders “sell in May and go away”. This summer, however, has been different. With debt limit debates in Washington, earthquakes, tsunamis, floods and tornados across the world and a recurring debt crises in Europe, there has been plenty to move markets and in turn—mortgage rates. We’ve seen historic lows for rates and we’ve seen them rise. This week with fresh signs of slowing growth in the US and renewed fears about European debt and banks, we may retest historically low rates.
There is very limited economic data to guide the markets this week. Today the Institute for Supply Management Services Index (ISM Services) reports July figures related to services sector activity. Tomorrow the Federal Reserve’s Beige Book, which is a measure of the general business climate in the Federal Reserve’s 12 regions around the US. On Thursday weekly jobless claims will be reported along with the US Trade Balance. All-in-all there is not much data that will keep rates higher this week.
Without economic data to guide the markets this week traders will respond to broader economic events. This week two issues will impact current mortgage rates—the reheating of the fears about European debt and banking crisis and President Obama’s “jobs plan” speech Thursday night.
Bond yields in Greece and Italy in particular have risen to new highs as investor’s fears over potential default have increased as several nations are balking at participating in further bailout efforts. Without a credible, on-going bailout plan the value of Greek and Italian debt instruments, in particular, will plummet. Since European banks are the largest holders of this debt, the banks solvency will quickly become an issue and threaten to destabilize the entire banking system around the world.
While lower mortgage rates are great for those consumers positioned to purchase a home or refinance a mortgage, the weak economy that produces those rates is, undoubtedly, bad for consumers. All eyes and ears will be focused on Europe over the next few days and on Washington Thursday night hoping to see and hear leadership in action. Will we be disappointed?
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