Wednesday, April 14, 2010

Mortgage investors appear to have largely shrugged off today's battery of macro-economic reports.


Earlier this morning the government reported retail sales were much stronger than had been expected in March while inflation pressures remained subdued.


Total retail sales jumped 1.6% last month as consumers stepped up purchases of everything from vehicles to vegetables. The component of the report that looks at sales excluding vehicles posted a gain of 0.6% -- a performance roughly inline with most analysts' expectations.
In a separate report the Labor Department said their measure of inflation pressures at the consumer level, the Consumer Price Index, rose a very modest 0.1% last month while the core index, a measure excluding the more volatile food and energy components, was unchanged on a month-over-month basis.


The important part of this story, especially in terms of its impact on the trend trajectory of mortgage interest rates, is that there's no inflation in the economy because we still have a ton of slack in the labor sector resulting in stagnant wage growth. As long as that condition prevails, retailers will find it difficult, if not impossible to push price increases through to consumers. Benign consumer inflation pressures tend to be supportive of steady to perhaps fractionally lower mortgage interest rates.



It is Wednesday which means the Mortgage Bankers of America have once again released their measure of mortgage application activity for the prior week. During the week ended April 9th the MBA said overall loan demand slumped 9.6% on a week-over-week basis. Requests for loans to purchase a home slipped 10.5% lower while refinance application traffic was down 9.0%.

From a technical perspective it appears that both the DOW and the NASDAQ are on the verge of staging a fairly sharp downward correction. In many judgments out there the DOW will probably find it difficult to move much higher than 11,100 while the NASDAQ is likely to run-out-of-steam as it trades in the 2450 to 2470 range. If a trend change favoring lower stock prices does not manifest itself this week - in my judgment it will by the week ending May 1st, 2010.



If this assessment proves accurate, a significant amount of the capital fleeing deteriorating conditions in the stock markets will almost certainly seek the safety of Treasury debt obligations and mortgage-backed securities - a condition that will in-turn prove supportive of steady to perhaps fractionally lower rates.



Be very, very patient here and pay close attention to price target objectives. The potential for some rather wild price swings in the mortgage market over the course of the next couple of days is high.