Monday, March 2, 2009

It is definitely worth noting that so far this year mortgage interest rates have been completely unable to sustain a rally to lower levels without significant "flight-to-quality" support of capital fleeing the stock markets in search of a safe harbor. The trend trajectory of the stock markets in the coming days and weeks will strongly determine the direction of mortgage interest rates.

Should the stock markets continue to sell off hard - look for such an event to be supportive of steady to fractionally lower mortgage rates. On the other hand, should the stock markets mount a sustained move to higher share prices such an event will almost surely push mortgage interest rates higher.

The entire docket of the week's upcoming economic reports will likely take a far backseat to the directional dynamics between stocks and interest rates. Economists and investors have projected lousy data well into the third-quarter of the year. Even Friday's nonfarm payroll report will likely draw nothing more than a passing glance from mortgage investors unless the employment picture proves to be better-than-expected. While such an outcome is possible - it is certainly not very probable.

For what it is worth manufacturing contracted in February for the 13th consecutive month. The Institute of Supply Management factory index rose to a reading of 35.8 last month from the 35.6 in January. The fractional improvement was welcome - but as long as the index remains below 50.0 analysts will consider the manufacturing sector to be in a period of contraction.
The Commerce Department also chimed in this morning with a report that showed spending rebounded 0.6% in January, snapping six months of declines while incomes rose. The surge in spending was attributed to massive discounts offered by retailers looking to reduce high inventory levels. The 0.4% rise in January incomes was almost all a function of cost-of-living adjustments for government employees.