Commentary: The primary driver behind last week's climb in mortgage interest rates was a growing notion among investors a definitive and practical plan to resolve the European debt crisis might be announced as soon as the end of this week. Stocks rallied and yields on Treasury debt obligations and mortgage-backed securities soared as investors began redeploying capital from safe-haven investment classes in search of a "bigger-bang-for-the-buck." This flow of capital into riskier assets classes did not last long.
German Finance Minister Wolfgang Schaeuble took the wind out of global market place optimism when he told reporters over the weekend expectations for a formalized strategy to resolve the debt crisis will likely take years rather than weeks to achieve.
Here is the general "so what factor" behind the European debt crisis story. U.S. exports to the euro-zone account for only about 2.0% of our total gross domestic product, which is relatively minor in general terms. What really concerns investors is that a worsening debt crisis in Europe could lead to a global financial panic, with major ripple effects washing through American banks - furthering tightening credit availability - which would in-turn weigh heavily on spending and employment.
There is nothing but uncertainty currently surrounding the debt crisis in Europe - and until there is some sign of a definitive resolution of the financial issues swirling through the 17 country currency union - this will be a story that tends to support steady to perhaps fractionally lower mortgage interest rates here in the States.
In other news of the day, the Federal Reserve reported this morning U.S. industrial production rose 0.2% in September, a value that matched most investors' expectations. Last month's improvement followed a downwardly revised reading showing flat output in August. Capacity Utilization, a measure of the amount of the nation's factories in use versus those factories full potential, edged up to 77.4% in September, from a downwardly revised August reading of 77.3%. Mortgage investors gave this data nothing more than a brief glance before returning their full attention to the unfolding events in Europe.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
