Daily Commentary by Larry Baer: Unless Congress and the White House can
find common ground in a hurry - it looks as though $1.2 trillion in
across-the-board spending cuts, known as sequestration, will begin to take
effect at midnight February 28th. If such an event does
occur it will likely create selling pressures in the stock markets which
should, in turn, provide strong support for the prospects of steady to perhaps
fractionally lower mortgage interest rates. There will not likely be any
movement on this issue over the course of the coming five business days --
since Congress is taking the whole week off in celebration of the birthday of
each of our 44 Presidents.
Industrial
Production in the U.S.
unexpectedly shrank in January after posting the biggest back-to-back gain in
three decades. Figures from the Federal Reserve showed output at
factories, mines, and utilities fell 0.1% last month after posting a solid 0.4%
gain in December. Today's report from the Fed also showed capacity
utilization, a statistical measure of the amount of plant capacity in use,
declined to 79.1% from a four-year high of 79.3% during the last month of
2012. Market participants generally shrugged of this report as most
believe a recession in Europe in
imminent. Without strong export demand it will be difficult, if not
impossible, for the manufacturing sector to match its solid 2012
performance. While softer growth in the manufacturing sector tends to be
supportive of steady to perhaps lower mortgage interest rates -- it also tends
to repress mortgage loan demand - particularly demand for purchase money
mortgages.
The coming holiday
shortened week will feature January Housing Starts & Building Permits, the
January Producer Price Index and the release of the minutes of the Fed's
January 29th - 30th meeting on Wednesday. Thursday
will also be a very active day with the release of the January Consumer Price
Index, weekly initial jobless claims, and January Existing Home Sales.
Considering the deluge of coming economic news Wednesday's 2:00 p.m. ET release
of the minutes from the most recent Fed meeting will be the "wild
card" in my opinion.
The last time the
Fed's minutes were released (January 3rd for the meeting of December
11th - 12th, 2012) mortgage investors were unnerved a bit
by discussion among the members of the Federal Open Market Committee about
possibly winding down or ending the Fed's mortgage-backed securities purchases
by the end of 2013. Mortgage investors will certainly be looking to see
if there was further discussion on this topic. The probabilities are high
the Fed did discuss "end-game" strategies for their quantitative
easing program - but those discussions were not likely materially different
than those of the December 2012 meeting. If my assessment proves
accurate, this event is unlikely to materially affect 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
