Thursday, April 22, 2010

The number of workers filing first time jobless claims fell by 24,000 last week while inflation pressures as measured by the producer price index edged up by a stronger-than expected 0.7%.


The largest share of the jump in prices at the producer and wholesale level was generated by an uptick in the price of fruits and vegetables due primarily to rough weather just prior to the harvest. Gasoline prices increased 2.1% after a 7.4% decline in February. Still inflation pressures at the factory and farm gates remain relatively benign. The core producer price index, a value that strips out the more volatile food and energy costs, rose a very modest 0.1%. As long as job and wage growth remain anemic - producers and wholesalers will find it very difficult to push through price increases -- a condition that will tend be to supportive of steady to perhaps fractionally lower mortgage interest rates.



In a separate report the National Association of Realtors said sales of previously owned homes rose 6.8% in March as Americans rushed to take advantage of government tax credit programs for homebuyers before the incentives expire at the end of the month. The Realtors estimate 44% of the March existing home sales were made to buyers qualifying for the $8,000 first-time homebuyer tax credit.



Belief is that the trend trajectory of mortgage interest rates is completely dependent on trading action in the stock markets. As demonstrated by mortgage investors disinterested response to today's barrage of economic reports it will almost certainly be an event that provides the momentum necessary to push mortgage interest rates in one direction or the other -- rather than anything on the balance of this month's economic calendar.



The stock markets have moved to a critical juncture - especially in terms of their ability to influence the trend trajectory of mortgage interest rates.



If the DOW and NASDAQ rally strong enough to close above their previous respective highs of 11154 and 2517 - the upward pressure on mortgage interest rates will intensify considerably.


On the other hand, if both indexes rally but fail to take out their previous highs before turning lower - it will be a very positive development for the prospects of steady to fractionally lower rates ahead. In my judgment this condition will be met and strong support for the prospects of lower mortgage interest rates will develop should the DOW trade below its April 16th low of 10973 and the NASDAQ falls through its April 19th low of 2451.


Until/unless one of the two scenarios outlined above develops look for mortgage interest rates to bounce back and forth in a very narrow range.