Daily Commentary by Larry Baer: Mortgage investors are responding to news this morning that indicates new orders for U.S. manufactured goods rose in December, while a gauge of the number of Americans standing in line to file first-time government jobless benefits claims rose last week.
New orders for goods ranging from toasters to airplanes rose 3% last month. Excluding transportation, new orders rose 2.1%. Though these figures surprised to the upside, the last month of the quarter often results in stronger than expected growth in both orders and shipments. Most mortgage investors are aware of this tendency and chose to shrug the report off as nothing more than a seasonal anomaly.
As expected, initial jobless claims rose in the latest week, reversing part of the prior week's unexpected decline. The usefulness of this data in gauging labor market conditions continues to be significantly diminished because of holiday related volatility. Mortgage investors gave this data nothing more than a passing glance this morning.
Sales of new homes unexpectedly declined in December for the first time in four months, capping the slowest year on record for builders. The supply of homes at the current sales rate increased to 6.1 months worth from 6.0 months in November. There were 157,000 new homes on the market at the end of December, the fewest on record.
The lion's share of this morning's rally in the mortgage market is being created by investors' sense it will not take much of a disappointment in terms of economic growth to get Fed Chairman Bernanke and the other members of the Federal Open Market Committee motivated enough to launch another round of quantitative easing. Most observers believe the Fed will focus on acquiring up to $500 billion worth of additional mortgage-backed securities should they choose to deploy another round of stimulus to help the staggering economy regain its footing. The jury is still out on this one -- but if such a program became a reality -- it is almost a virtual certainty mortgage interest rates will move fractionally lower. Since mortgage investors live in the future - not the present -- today's rally is largely a reflection of investors moving to preliminarily price-in a future quantitative easing move from the Fed. From a timing perspective don't look for much to develop here until March or later. I will keep you posted.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
