Friday, October 30, 2009

It appears the mortgage market is poised to drift through the last trading day of October taking directional cues from trading activity in the stock markets. Lower stock prices will tend to support steady to fractionally lower mortgage interest rates. In the off-chance stock prices rally - look for mortgage investors to push rate sheet prices lower.


This morning's report of September Personal Income and Spending fell almost exactly on values most economists had projected - rendering the whole thing essentially toothless with respect to its influence on the trend trajectory of mortgage interest rates.


Looking ahead to next week the release of the Fed's post-meeting statement on Wednesday afternoon and the October nonfarm payroll numbers on Friday morning will dominate the macro-economic calendar. There is a chance the Fed will tweak the language in their statement to open the door for a potential short-term rate hike somewhere down the road.

Most believe economic conditions are still too fragile for the Fed to run the risk of upsetting the credit market's apple cart. If the consensus view proves accurate, the Fed meeting will come and go without exerting much, if any direct influence on the direction of mortgage interest rates. On the other hand, if the Fed chooses to do a little wordsmithing - and investors interpret the change to indicate the Fed is considering moving away from their accommodative monetary policy stance -- expect market participants to register their displeasure by pushing interest rates higher and prices lower.


The only threat of higher mortgage interest rates in Friday's nonfarm payroll data will be if the numbers prove to be significantly stronger than market participants now anticipate. In my judgment it will take a headline payroll number that shows job losses of 150,000 or less and/or a national jobless rate of 9.7% or lower and/or an average work week of 33.0 hours or more. The likelihood that one or any combination of these values actually appears in the Labor Department report is very small.