Thursday, September 16, 2010

Market Recap - Week Ending September 10, 2010

Stronger than expected economic data pushed mortgage rates a little higher again this week. Following a string of weekly drops since the middle of June, mortgage rates have now risen for two straight weeks.

Over the summer, mortgage rates have fallen substantially. Weaker than expected economic reports and the debt crisis in smaller European countries caused investors to reduce their forecasts for economic growth and produced a flight to the relative safety of government guaranteed bonds, resulting in the lowest mortgage rates in decades. Now, however, some investors are asking whether they can fall further. Weaker than average economic growth, low inflation, and an "unusually uncertain" economic outlook still make the current environment supportive of low mortgage rates, but some investors feel that these factors have been fully "priced in." These investors feel that economic growth must falter significantly for mortgage rates to drop much from here.

Also contributing to the fall in rates was the possibility that the government would take action which would push mortgage rates lower. The political climate has turned less favorable for this, though. Growing opposition to fiscal spending of any type has reduced the chances for additional government support for the housing market and mortgage rates.

The most significant economic data next week will be the monthly inflation reports. The Producer Price Index (PPI) focuses on the increase in prices of "intermediate" goods used by companies to produce finished products and will come out on Thursday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Friday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, Retail Sales, an important indicator of economic growth, will be released on Tuesday. Retail Sales account for about 70% of economic activity. Industrial Production, another important indicator of economic growth, is scheduled for Wednesday. Empire State, Import Prices, Consumer Sentiment and Philly Fed will round out the week.

Market Recap - Week Ending September 10, 2010

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