The mortgage market started the day on an interest rate friendly note.
There was nothing on the economic calendar to drive price action but overnight news that Japan's second-quarter economic growth was far weaker-than-expected sent Japanese investors scrambling to move capital into the relative safe-harbor of dollar denominated assets like Treasury obligations and mortgage-backed securities. The early round of "flight-to-quality" buying is beginning to fade - and so is the rally in the mortgage market favoring fractionally lower mortgage interest rates.
Tomorrow will be the most active day of the week in terms of economic news and will feature the release of the July Housing Starts and Building Permits figures, the July Producer Price data together with the July Industrial Production and Capacity Utilization numbers. None of these reports are expected to offer anything sensational enough to influence the direction of mortgage interest rates one way or the other. Thursday's initial jobless claims number might exert some noticeable upward pressure on mortgage rates - but only in the off-chance it shows a headcount decline of 15,000 or more.
In my opinion the trend trajectory of mortgage interest rates will be most influenced by trading action in the stock markets this week. My technical analysis work suggests the Dow will not close below 10200 (Friday's close was 10303.19) before perking up enough to climb into the 10800 range before running out of momentum on or before September 8th. If my assessment proves accurate, expect rising stock prices to nudge mortgage interest rates fractionally higher. My current projections for the trend trajectory of the Dow - and by extension for the mortgage market - will be completely invalidated should the Dow close below the 10200 mark this week.
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