Daily Commentary by Larry Baer: Different day - same story.
The Federal Open Market Committee meets today
and tomorrow. The European Central Bank
and the Bank of England meet on Thursday.
Of the three, Thursday's ECB meeting probably
packs the most "punch" with respect to its potential impact on the
current trend trajectory of mortgage interest rates here at home.
Fed Chairman Bernanke and his fellow
committee members are not expected to take any meaningful policy action this
time around - waiting at least until their September meeting before considering
launching another round of economic stimulus.
Last week Thursday European Central Bank
President Mario Draghi publically pledged to do whatever it takes within the
ECB's mandate to preserve the euro. He
went on to say, "And believe me, it will be enough." Intentionally or not, Mr. Draghi has raised
expectations for bold, aggressive action from the European Central Bank sooner
rather than later.
Global investors will be unforgiving if the
ECB chief does not add anything of substance on Thursday to his dramatic
promise made the previous week. Against
such a backdrop stock prices will likely fall as domestic and global investors
alike intensify their purchases of safe-haven assets like Treasury debt
obligations and agency eligible mortgage-backed securities - a condition,
should it develop, that will obviously be very supportive for the prospects of
steady to perhaps fractionally lower mortgage interest rates on Main Street,
USA.
On the other hand, should Draghi comes
through with something of substance, his plan will probably include substantial
cuts to short-term interest rates combined with large bond purchases by the
European Central Bank - in essence their version of the Fed's quantitative
easing program. The initial kneejerk
reaction of investors may continue to prove supportive of steady to perhaps
fractionally lower mortgage interest rates for a day or so -- but it probably
won't take long for increasingly large amounts of European capital currently
"parked" in low yielding U.S. dollar denominated assets to begin a
migration back into higher yielding asset classes elsewhere on the globe. When (notice I didn't say if) this process
begins in earnest, the lowest U.S. mortgage interest rates in modern recorded
history will have been set and the slow but methodical march to higher mortgage
interest rates will have begun. I'm not
suggesting all of this will transpire by Thursday afternoon - I am just
pointing out the fact it is inevitable the refinance music is going to stop --
and those who are prepared -- will easily grab a seat on the purchase money
bandwagon.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
