Commentary: For all the talk last week suggesting European financial leaders had successfully developed a comprehensive plan to avoid a major economic meltdown in the euro-zone -- global credit markets have now come to the unsettling realization that key pieces of the much ballyhooed agreement may be extremely difficult, if not impossible to get implemented. The biggest question mark surrounds how exactly the "European Financial Stability Fund" - the major element of the entire strategy -- will actually be funded.
Leaders from the world's 20 leading economies will meet in Cannes, France on Thursday and Friday. Market participants will be listening and watching intently to see if other countries, particularly China, announce intentions to help fund the European financial rescue effort. If it appears other members of the global financially community intend to contribute substantial sums of money to the "EFSF" look for investors to respond by shifting their funds from the relative safe-haven of Treasury debt obligations and mortgage-backed securities into riskier but higher yielding assets like stocks. On the other hand -- should the global financial community choose to keep their check books closed -- it is highly likely mortgage interest rates will tumble yet lower as capital flees Europe for the safety of dollar denominated fixed-income assets. More on this story to come.
Here at home the Federal Open Market Committee gathers for two-days of monetary policy discussion on Tuesday and Wednesday. With fears receding a new U.S. recession is imminent the Fed will likely make no change to the current level of their benchmark short-term interest rates. There are some who believe the Fed may offer hints on how close it is to expanding asset purchases - perhaps even returning as a major buyer of mortgage-backed securities in an effort to spur economic growth. I suspect the Fed will not discount such a move completely - but will make it clear that further stimulus is not likely to be forthcoming for the balance of the year - a mortgage interest rate neutral event.
The Labor Department will release the October nonfarm payroll data on Friday, November 4th at 8:30 a.m. ET. While the media will try to whip up some excitement going into the number the probabilities are high the current forecast calling for the creation of 100,000 new jobs and a national jobless rate stuck at 9.1% will likely be proven accurate. These values are already well price into the mortgage market so numbers generally matching the forecast will have little, if any impact on the current trend of mortgage interest rates.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
