Current mortgage rates have almost hit their all-time lows this week after concerns over the ability of Europe to resolve its debt and solvency crisis increased heading in to a Summit of leaders yesterday and today. But today as the result of that meeting are announced, the markets are responding cautiously—unsure quite what the agreements will mean for the future. I expect mortgage rates to hold close to current levels today.
26 of the 27 European Union (EU) member nations stated that they are prepared to pursue a new treaty that will help to tackle the current debt and solvency issues while also seeking to prevent a replay in the future. The lone holdout is Great Britain, who simply is not comfortable with the shared responsibility for the debts of other nations. Given that Great Britain was not part of the European Monetary Union to begin with, this is not particularly surprising.
However, since the EU members did not agree on specific Treaty changes to enforce new budgetary constraints, many analysts believe the ultimate deal will occur among the 17 European Monetary Union nations rather than the full EU membership. Moreover the negotiations may take months to complete. The two key deal points that have emerged from the Summit are that penalties will be imposed on any nation violating budgetary constraints established by the members and a requirement that all members have a balanced budget.
In the US today market reaction is subdued. The US economy continues to perk up as evidenced by a lower than expected trade deficit report and an expected strong consumer sentiment report. Stocks are up today and bonds, including mortgage-backed securities, are a little less in demand than they were yesterday. Investors have apparently heard enough positive news from Europe to warrant a focus on other issues today—namely the emerging strength in the US economy.
Next week it will be the US economy that is the primary focus of traders as several key reports are released. Among them are retail sales, producer and consumer prices and industrial production reports. Most analysts expect continued positive developments throughout the economic data. If so, mortgage rates could push a little higher from their near record current levels.
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