Daily Commentary by Larry Baer: The Bureau of Economic Analysis announced
earlier this morning that their models showed economic growth slumped
dramatically in the last three months of 2012. Gross Domestic Product, a
statistical measure of the value of the goods and services produced in the
country during the fourth-quarter declined to a reading of -0.1%. Most
economists had anticipated Q4 GDP would post a gain of 1.0% or more.
According to government figures, the decline in economic activity was dominated
by a plunge in federal defense spending, exports, and weaker inventory
accumulation. This was the first decline in GDP since the second quarter of
2009.
The sharp decline in
the pace of economic growth during the final three months of last year
indicates a slow start to the new year is highly probable. Against such a
backdrop the Fed will almost certainly choose to maintain the status quo with
respect to their current monetary policy positions. If so, there is
little chance they will abandon their bond and mortgage-backed security buying
program anytime soon. Look for Chairman Bernanke and his fellow central
bankers to emphasize that point when they issue their traditional Federal Open
Market Committee post-meeting statement this afternoon at 2:15 p.m. ET.
Uncle Sam will wrap
up a three-day, three-part auction schedule with the sale of $29 billion worth
of 7-year notes today. The yield on this security now roughly equals its
late December high and has not been higher since April 2012. There
is every reason to expect demand from both foreign and domestic investors to be
solid - a condition that should help curtail the current upward pressure on
mortgage interest rates.
A stronger-than-expected
auction this afternoon will likely be broadly interpreted by many analysts as a
sign market participants are not convinced the economy is on a sustainable
trajectory to higher growth levels - a view likely to exert selling pressure on
stocks to the benefit of steady to perhaps fractionally lower mortgage interest
rates.
The auction will
conclude at 1:00 p.m. ET and I'll post the auction result on my website as soon
as possible once the final gavel falls.
As they do every
Wednesday, the Mortgage Bankers of America have released their Mortgage
Application Survey figures for the week ended January 25th.
During the survey week demand in the form of refinance loan requests declined
by 10.2% while purchase money loan requests dropped by 1.8%.
Refinance applications accounted for 79% of all applications and 75% of the
perspective loan volume.
The contract rate
for 30-year fixed rate conforming mortgages rose 5 basis points to 3.67%.
The interest rate is 15 basis-points higher from four weeks ago, but still 42
basis points lower this time one-year ago.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
