Daily Commentary by Larry Baer: Second
verse - same as the first
Trading action in the mortgage market is once
again light and sporadic this morning.
Investors are reluctant to take positions before the Federal Open Market
Committee releases its post-meeting statement at 12:15 p.m. ET.
Most analysts seem to agree there are three
general courses of action the Fed may choose to pursue in their efforts to
jump-start the sputtering recovery;
(1) They can initiate a full-blown
quantitative easing program (QE3),
(2) They can extend beyond June 30th
the scheduled expiration of "Operation Twist" (a program where the
Fed sells short-term notes in its portfolio and uses the proceeds to buy
longer-term notes), or
(3) They can keep their powder dry and wait
to see if coming data shows the economy is just traveling through a temporary
"soft-patch."
The relatively solid current level of
"core" inflation together with upward trending future
"core" inflation expectations make it likely the Fed will choose to
hold off before considering launching a new major quantitative easing
program. On the other hand, the current
pace of economic activity is barely registering a heartbeat -- which means the
Fed will almost certainly feel compelled to "do something" - which
makes the extension of "Operation Twist" their most likely course of
action.
If this assessment proves accurate, stock
investors will probably feel the Fed has decided to
fiddle-while-Rome-is-burning - prompting a round of stock selling that should
prove supportive of the prospects for steady to fractionally lower mortgage
interest rates. In the unlikely event
central bankers announce the launch of another round of mortgage-backed
security purchases as part of a new Quantitative Easing stimulus
program (QE3) -- mortgage interest rates may actually creep fractionally
higher from current levels as stock prices climb yet higher.
I'll provide you with an update regarding the
Federal Open Market Committee's decision as soon as possible once the official
statement is released this afternoon.
As they do every Wednesday, the Mortgage
Bankers of America have released the results of their Mortgage Application
Survey for the week ending June 15th. The composite index (a value that includes
applications for both purchase and refinances) dropped by 0.8% during the
survey period. The purchase index fell
8.5% during the week, giving back most of the prior week's substantial gain. The refinance index inched up 1.0% as
mortgage interest rates edged fractionally lower.
Refinance applications accounted for 80.5% of
all applications and 78.5% of the prospective loan volume. The contract rate for 30-year fixed-rate
mortgages finished the week at 3.87%, down 1 basis-point from the its week ago
level, down 6 basis-points from four weeks ago, and down 74 basis-points on a
year-over-year basis.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
