Daily Commentary by Larry Baer: Earlier this
morning the International Monetary Fund warned investors of every description
the organization's models are indicating the United
States faces meager growth of about 2.0% this
year and next. The IMF is also
predicating the euro zone economy will shrink 0.4% in 2012 and it also sharply
downgraded its outlook on China,
the world's second-largest economy.
The negative impact
a global economic slump will have on stock values has prompted many in the
investment community to dump riskier assets and pour money into safe havens
like Treasury debt obligations and agency-eligible mortgage-backed securities.
Stock indexes here
at home tumbled following the IMF report. Thompson Reuter's data through last
Friday showed 90 companies in the S&P 400 have lowered their earnings
outlooks versus 21 who have raised their earnings projections. The resulting ratio of negative to positive
outlooks of 4.3 to 1 is the weakest showing for this metric since the third
quarter of 2001 - a period when the DJIA fell by more than 2,000 points.
The "so
what" factor here is simple and direct - trading activity in the stock
markets exerts significant influence on the trend trajectory of mortgage
interest rates. Higher stock
prices tend to put upward pressure on rates while lower stock prices almost
always prove supportive of the prospects for steady to perhaps fractionally
lower mortgage interest rates.
As they do every
Wednesday, the Mortgage Bankers of America have released their Mortgage
Application survey figures for the week ending October 5th. Mortgage application activity overall fell
by 1.2% last week. Purchase application
demand advanced for the third consecutive week, rising by 2.4%. Refinance requests fell by 2.0%. Refinance requests represented four out of
very five applications taken last week.
The contract rate
for 30-year fixed-rate conforming mortgages rose by 3 basis-points to 3.56%. The interest rate is down 19 basis-points
from four-weeks ago and 69 basis-points from the year-ago mark.
The Treasury
Department will be in the credit market today looking to sell $21 billion worth
of 10-year notes. The auction will
conclude at 1:00 p.m. ET. This event is
not expected to influence the current trend trajectory of mortgage interest
rates one way or the other.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
