Daily Commentary by Larry Baer: The
trend trajectory of mortgage interest rates here in the states remains firmly
"joined-at-the-hip" with the rise and fall of
"flight-to-quality" flows of capital from the global credit markets. Currently those capital flows are rising
which is contributing strong foundational support to the prospects for steady
to perhaps fractionally lower mortgage interest rates from your investors.
Uncle Sam will be in the credit markets
looking to auction off $35 billion of 5-year notes today. The auction will conclude at 1:00 p.m.
ET. Softer-than-expected demand for
yesterday's 2-year note offering may cause investors to bid less aggressively
for today's offering. If so, look for
this event to put some slight upward pressure on mortgage interest rates in the
second-half of the trading day.
Demand for long-lasting U.S.
manufactured goods designed to have a useful life of three years or more (think
everything from vacuum sweepers to hydro-electric turbine engines) posted a
stronger than expected gain of 1.1% in May - up noticeably from April's 0.2%
decline. Transportation orders,
particularly aircraft and automobiles, made up the lion's share of the
surge. The "ex.
transportation" level of demand posted a much more modest 0.4% improvement
last month. Though fundamentals in the U.S.
still support mediocre demand -- most investors believe eroding conditions in Europe,
anemic domestic job growth, and a slump in Chinese economic activity will soon
take its toll on domestic economic activity - a view very supportive of the
prospects for steady to perhaps fractionally lower mortgage interest rates - at
least in the near-term.
The Mortgage Bankers of America have released
their Mortgage Application survey for the week ended June 22nd. The composite index, representing both
purchase and refinance demand, fell 7.1% during the survey period - pulled down
by an 8.3% decline in refinance requests.
The number of purchase loan requests declined by a more modest 1.4%.
Refinance applications accounted for 79.5% of
all applications and 77.4% of the prospective loan volume.
The contract rate for 30-year fixed-rate
conforming mortgages finished at 3.885%, up 1 basis-point from its week-ago
level, down 3 basis-points from four weeks ago, and down 71 basis-points from
the year ago mark.
Trading activity in the stock markets will
likely be the strongest single determinant of mortgage interest rate direction
over the course of the remaining three business days. Lower stock prices will tend to support
steady to lower mortgage interest rates while higher stock prices will probably
drag mortgage interest rates fractionally higher.
My models are currently indicating the stock
markets may be poised to begin a short-lived but rather powerful counter-trend
rally, probably not later than Thursday or Friday. It is unlikely a rally in the stock markets,
should it actually develop, will prove strong enough to meaningfully eclipse
the markets recent highs (12,898 for the Dow and 4459 for the Nasdaq) - but any
noticeable improvement in the equities markets will probably make it difficult,
if not impossible, for mortgage interest rates to move notably lower in the
near-term.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
