Daily Commentary by Larry Baer: Euro-zone finance ministers announced an agreement to provide the desperately needed bailout package for Greece will be in place by Tuesday. These announcements have been made before, but the rumor mill suggests this time around will be different, and the talks will result in a "done deal". If the rumor mill proves accurate, the agreement will go a long way to help contain the financial crisis that has been plaguing Europe for the past two years.
As I have mentioned here in previous commentaries, mortgage investors are keenly aware improving conditions surrounding the European debt crisis will likely take the edge off of the global investment community's appetite for safe-haven investments like U.S. dollar-denominated government debt obligations and mortgage-backed securities. If the current trickle of capital flowing out of the safe harbor of dollar-denominated assets were to turn into a flood -- one of the key supports holding mortgage interest rates at current levels will be washed away. This is a process that will evolve over time and currently is not much of a near-term threat, but I think it would be wise to view it as an inevitability -- rather than a possibility. I will continue to keep you posted as this story continues to evolve.
The economic news of the day was slightly mortgage interest rate unfriendly.
New claims for unemployment benefits fell more than expected during the week ended January 28, pointing toward a labor market that continues to show signs of modest improvement. Initial claims for state unemployment benefits dropped 12,000 during the survey period. While businesses are not cutting jobs as rapidly as they did during the height of the recession, employers have not reached a position where they are confidently adding headcount to their payrolls on a consistent monthly basis. Until or unless the employment picture improves significantly, the labor story will continue to be supportive of the prospects for steady to perhaps fractionally lower mortgage interest rates.
A separate Labor Department report showed growth in US nonfarm productivity slowed in the fourth quarter, while wages rebounded, although the increase in hourly compensation pointed to only moderate inflation pressures ahead. Fourth-quarter productivity rose 0.7%, while labor cost increased at a 1.2% pace. After topping out at more than 4% in 2010, productivity growth averaged less than 1% in 2011. Slowing productivity will compel businesses to ramp-up hiring should demand for goods and services show a notable increase this year. While not a factor yet -- rising employment tends to increase the demand for home loan purchases - a condition which in turn tends to put upward pressure on mortgage interest rates.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
