Daily Commentary by Larry Baer: Trading activity in the mortgage
market is quiet this morning as worries over the impact of potential spending
cuts on the economy provide support for the prospects of steady mortgage
interest rates.
This week President
Obama will shift his media based campaign into high gear to urge Republican
members of Congress to approve a $110 billion tax increase and spending cut
that would postpone the severe "sequestration" government budget cuts
set to begin on Friday, March 1st.
While the political
theater may be interesting - it won't likely amount to anything noteworthy.
Congress is in recess this week and will return with only four-days left to
cobble together an agreement to avoid the sharp curtailment in government
spending that was part of the debt limit extension agreement from 2011.
The spending cuts set forth in the previous legislation were thought to have
been so burdensome on the economy that Congress and the White House would never
allow them to be triggered. That was then. Now, with only a few
days left before $1.2 trillion in spending cuts begin to automatically take
effect, it is almost certain political dysfunction will allow the once
unthinkable to come to pass. The good news is that government spending
cuts will tend to be supportive of steady to perhaps fractionally lower
mortgage interest rates. The bad news is these spending cuts will likely
spawn a noticeable slowdown in economic growth - a condition that will almost
certainly take a toll on purchase-money mortgage demand on a national basis.
In term of economic
news and events this 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
tomorrow. 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 significantly 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
