Europeans Reach Agreement

European Agreement Reached

To the relief of investors, European leaders reached agreement to provide aid to countries with debt troubles. Investors reversed the flight to safety trade, pushing mortgage rates higher. The economic data released during the week was positive for mortgage rates, however, and Fed officials hinted that the Fed could purchase additional MBS to stimulate the economy. The effect of these opposing influences was a high degree of volatility, but mortgage rates ended the week with only a small increase.

On Thursday, European leaders announced a comprehensive aid package, and the scope of the plan was large enough to reduce the concerns of most investors. The European plan included three primary elements. First, private banks holding Greek bonds agreed to a “voluntary” haircut of 50%. Second, the EFSF bailout fund will be increased to 1 trillion euros (about $1.4 trillion). Finally, 106 billion euros will be used to recapitalize European banks. After the news, global stock markets posted large rallies.

Following the European announcement, investors will focus more attention on the economic data. The current economic environment, with slow economic growth and tame inflation, supports low mortgage rates. Third quarter GDP increased at a 2.5% annual rate, which was faster than the first half of the year, but still below average. The September Core PCE price index, an inflation indicator closely watched by the Fed, was a moderate 1.6% higher than one year ago. Any signs of faster economic growth or rising inflation could push mortgage rates higher, however.

Also Notable:
• October New Home Sales rose 6% from September
• Consumer Confidence declined to the lowest level since March 2009
• The Fed’s Dudley suggested that a third round of quantitative easing is possible
• Oil prices rose above $90 per barrel to the highest level since early August

Average 30 yr fixed rate:
Last week: -0.02%
This week: +0.05%

Stocks (weekly):
Dow: 12,200 +500
NASDAQ: 2,750 +100

Week Ahead

Another big week lies ahead. There will be a Fed meeting on Wednesday. Investors will be looking for an update on economic growth and signs of additional easing. The biggest economic report next week will be the important Employment data on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Before the employment data, Chicago PMI will be released on Monday. ISM Manufacturing and Construction Spending will come out on Tuesday. ISM Services, Factory Orders, and Productivity are scheduled for Thursday.

To learn more about news impacting interest rates and mortgage markets, go to www.mbsquoteline.com
To learn more about the newsletter, please call 800-627-1077
All material Copyright © Ress No. 1, LTD and may not be reproduced without permission.

Roger Odoardi

Roger is an owner and licensed Loan Officer at Blue Water Mortgage. He graduated from the University of New Hampshire’s Whittemore School of Business and has been a leader in the mortgage industry for over 20 years. Roger has personally originated over 2500 residential loans and is considered to be in the top 1% of NH Loan Officers by leading national lender United Wholesale Mortgage.