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The Mortgage Buddy Rate Outlook for the Week Beginning Oct 31st

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Mortgage and Lending

The Mortgage Buddy is writing this week from Nu Cafe in Worcester, MA. We had about a foot of snow yesterday and there are trees and power lines down everywhere.

This week will be highlighted by the release of some manufacturing data, the big unemployment report on Friday, and the promise of a new EU deal to keep the band-aid on the debt crisis for our cousins across the pond for at least a little longer. Last week saw a big move to the upside in mortgage rates. Now big is a relative term because the rates are still in the low to mid 4% range according to Freddie Mac but they are up about .25%. I can't stress how important this coming week is to the mortgage rates.

After looking like the market was heading for a double dip in September and the 10yr Treasury rate holding steady below 2%, the market has seen it's 2nd biggest month in history only to be outdone by December of 1987. Yes the same December that followed the Black Monday Crash in October.

What has caused the recent run up in the stock market

Better than expected earnings report-nearly 74% of companies that have reported have reported better than expected earnings.

Slightly better than expected economic data releases- Last week's GDP report was better than many expected and the weekly jobless claims haven't been getting any worse

Europe- The European Debt Crisis has been the 800lb gorilla in the room that has weighed on our economy. In a global market place we are ever more connected in this shrinking world. This past Friday it looks like there is deal in place to once again bail out Greece and hopefully stop the contagion to Portugal,Italy, and Spain.

 

Let's take a look at the data points that could move the markets this week.

Tuesday 10am- ISM Manufacturing Index: By definition the Institute for Supply Management surveys more than 300 manufacturing firms on employment, production, new orders, supplier deliveries, and inventories. Manufacturing is the back bone of the middle class and a strong number means the economy is growing. Look for a flat number below 50. A strong number here will push the market up and a weak number will push it down.

Wednesday 12:30pm- The FOMC meeting interest rate announcement. We already know from the last meeting that Fed is committed to keeping interest rates low until the middle of 2013. This is also as long as HARP program has been extended until. Traders and economists will pay close attention to the language of the release. We basically know what is being said but sometimes the actual language will foreshadow any changes to come.

Friday at 830am- The October unemployment report and unemployment rate will be released live at 830am. Being the mortgage and market geek that I am this is my favorite report of the month. I sit with anticipation in front of the TV with my coffee waiting for the numbers. I can't imagine that the number will be strong but I also don't anticipate it to be weak. We need to start seeing consistent numbers over 200k a month if the unemployment rate is to drop. My personal opinion the rate is never going back under 7% and it never has to. We have become a victim of our own innovations.

Opinion:

This week's rate outlook depends more on the strength of the EU deal than anything else. There have been rumors over the weekend that the deal is not being looked upon as favorably as first thought. If there is any hint of this falling apart look for the risk trade to be off and investors to fly back into bonds which will pull the rates back down. We are currently in a situation that our stock market growth is being driven by a European deal. Pay close attention to the European markets and Friday's job report. I think the deal will fall apart and rates will pull back a bit.

 

Posted by

 

John B. Saari


 

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