Daily Commentary by Larry Baer: The Treasury
Department will sell $29 billion of 7-year notes at auction today. The final gavel will fall at 1:00 p.m.
ET. These notes should draw a solid bid
from investors. I don't think there is
much to worry about here in terms of this event negatively impacting the
current level of mortgage interest rates.
The effect of this
morning's two economic reports on the mortgage market has been muted as
well.
The number of orders
placed with nation's manufacturers for Durable Goods - items built with an
expected useful life of 3-years or more - climbed 9.9%. As with most reports, the devil is in the
detail - and in this case the news wasn't nearly as good as the headline might
otherwise suggest. The lion's share of
the September increase in durable goods orders came from a rebound in the
bookings for commercial aircraft. If the
transportation component is stripped out - durable goods for everything from
toasters to x-ray machines rose a much smaller 2.0% -- signaling future
activity in the manufacturing sector will not be a major contributor to overall
domestic economic growth anytime soon.
Many economists believe companies are holding back placing new orders
due to fears Congress could fail to avert the looming "fiscal cliff"
of sharp tax hikes and massive government spending cuts scheduled to take
effect at midnight on December 31st - an event if left unchecked -
almost certain to send the economy back into recession.
In a separate
report, the Labor Department said initial claims for government unemployment
benefits dropped 23,000 during the week ended October 20th to a
seasonally adjusted 369,000. After
smoothing out the week-over-week gyrations, the data shows the overall level of
jobless claims is little changed from the end of the summer. A rising tide of news regarding a developing
global economic slowdown and the approaching U.S.
national elections has sent many businesses to the sidelines with their hiring
plans in their back-pockets to wait to gain more clarity about growth prospects
and likely governmental policies before thinking about adding headcount to
existing payrolls.
Trading action in
the stock markets will once again likely prove to be the strongest single
determinant influencing the trend trajectory of mortgage interest rates for the
balance of the week Higher stock prices
will tend to drag rates higher while falling stock prices are almost certain to
prove supportive of the prospects for steady to perhaps fractionally lower
mortgage interest rates.
*The Dow is
testing the very strong support at, or very near the 13,000 level (as I write
the Dow is trading at 13,064). As I
mentioned in Monday's commentary I think it is likely a downward breach of the
support at or very near 13,000 opens the door for a drop into the 12,400 range
before sellers might consider taking a brief pause to catch their breath. Should such a scenario actually develop --
the likelihood mortgage rates will move lower from current levels is
strong. That is the good news part of
this story. The bad news is the
psychological impact a stock market tumble of this magnitude would have on
prospective borrowers will probably result in reduced loan demand even in the
face of steady to lower mortgage interest rates.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
