Mortgage Market News for the week ending July 15, 2011

Growing Uncertainty
 
During a week packed with economic data, Europe and the Fed took center stage in influencing mortgage rates. Uncertainty about the economic outlook caused a flight to relatively safer investments, and mortgage rates ended the week a little lower.

 
In June, stronger than expected economic data caused investors to raise their growth outlook, which was negative for mortgage rates. Last week's disappointing jobs report removed much of the optimism and raised the level of uncertainty this week. Other factors also contributed to the increased uncertainty. Investors grew significantly more concerned about the debt problems in Europe, particularly in Italy. There was also a lack of progress in the US debt limit talks. The desire for safer assets was evident this week in improved mortgage-backed securities (MBS) prices, strong demand for the Treasury auctions, and higher gold prices.


When the FOMC Minutes from the June 22 Fed meeting were released on Tuesday, investors were surprised to see that Fed officials were open to the idea of additional Treasury bond purchases to boost the economy. Following the June 30 conclusion of the second round of bond buying, investors believed that a third round would be extremely unlikely. In his testimony to Congress, Fed Chief Bernanke elaborated that Fed officials want to keep all options open, including further stimulus, depending on the strength of the economy. Bernanke noted that the economy would have to falter significantly from its expected pace of growth for the Fed to add stimulus. What investors took from the Minutes and the testimony is that in the event of a downturn the Fed may be quicker to provide additional stimulus than previously thought.

Also Notable:

June Core CPI inflation increased at a 1.6% annual rate

The Fed's Rosengren described the June Employment report as "dismal"

Major credit rating agencies warned they might cut the rating of US govt debt

Gold prices rose to a new high above $1,580 per ounce

Week Ahead It will be a light week coming up. Housing Starts will be released on Tuesday. Existing Home Sales will come out on Wednesday. Leading Indicators and Philly Fed will be released on Thursday. Negotiations to raise the US debt ceiling and economic troubles in Europe will remain the focus next week.