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Growing Uncertainty in Europe

Increased concerns about the troubles in Europe had the biggest influence on mortgage rates this week. As usual, investors reacted by shifting to relatively safer assets including US mortgage-backed securities (MBS), and mortgage rates again ended the week a little lower. Spain has been the focus in Europe recently, but issues emerged this week from more surprising sources. The President of France is behind after the first round of voting in his bid to be reelected, and his opponent is not a supporter of austerity measures. In addition, budget talks broke down in the Netherlands after seven weeks, without an agreement on cutting spending. With weak economic data coming from nearly every euro zone country except for Germany, many people are questioning whether austerity plans are the correct remedy for the troubles in the region. Investors are reluctant to invest in the region amid the uncertainty, raising bond yields (and government borrowing costs). In stark contrast to the Fed statement released in March, Wednesday’s Fed statement caused almost no reaction. The content was little changed from the prior statement. In recent weeks, Fed officials have repeatedly expressed that current monetary policy is appropriate for the existing economic conditions. The statement and press conference provided no reason to change the consensus view that there is a high hurdle for Fed officials to either provide additional easing or to begin tightening in the near future. Unexpected events such as sustained weakness in the labor market or severe troubles in Europe might prompt the Fed to ease further, while a surge in inflation could lead to early tightening. Also Notable: • First quarter GDP increased 2.2%, down from 3.0% in the fourth quarter of 2011 • Pending Home Sales rose 4% to the highest level since April 2010 • Demand was stronger than average for this week’s Treasury auctions • S&P downgraded the debt of Spain Average 30 yr fixed rate: Last week: -0.01% This week: -0.02% Stocks (weekly): Dow: 13,200 +150 NASDAQ: 3,050 +25 Week Ahead 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, the Core PCE price index, Personal Income, and Chicago PMI will be released on Monday. ISM Manufacturing and Construction Spending will be released on Tuesday. ADP Employment and Factory Orders will come out on Wednesday. ISM Services 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 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.