Welcome to the opening day for the markets in 2012. If you are a Mayan forecasting supporter then perhaps I should say, “Welcome to the final opening day for the markets—ever!” Today begins with mortgage rates at all-time lows, but based on early activity in the stock and bond markets, mortgage rates are on the rise. Fresh economic data this morning will determine today’s ultimate direction for mortgage rates and important economic reports later in the week will provide strong guidance for investors.
A stock market rally to start the year is not unusual as investment funds stake out initial positions that they believe will be favorable this year. However, the importance is magnified when analysts and investors believe the year itself will be better overall for the markets. Such is the case to begin 2012. Stocks are rallying as initial positions are secured at the outset of a year most market participants surveyed believe will be better than 2011. So for today at least the old adage holds, “When stocks are up, bonds are down.” And since mortgage-backed securities that actually determine mortgage pricing are a type of bond, mortgage pricing is going higher.
But all this initial activity is subject to review based on economic data to support the positions. At 10 AM the Institute for Supply Management’s monthly manufacturing survey was released. Expectations were for a slight rise in manufacturing activity. The actual result was just higher than expectations and the highest reading since June 2011. Also announced at 10 AM was a strong increase in construction spending. Both reports support the move higher for stocks and interest rates.
Later this week the initial trend higher for mortgage rates will be either confirmed or stymied by employment data. The weekly jobless claims report will be released on Thursday and the all-important Non-Farm Payrolls Report will be released on Friday. Most analysts expect confirmation of the improvement employment.
For today at least, Europe is not the driving force behind or markets. Let’s enjoy the positive news about the US economy while we can because the European problems will return soon enough.
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