Almost all of the momentum behind this morning's selling pressure in the mortgage market is being generated by investors' perception that Euro-zone leaders have stuck a deal to limit the damage from the financial crisis gripping the region. Early this morning international bankers, heads of state, and officials from the International Monetary Fund announced they had reached a deal to recapitalize ailing European banks together with an aggressively negotiated commitment to expand the euro-zone rescue fund to $1.4 trillion.
The headlines surrounding this event make it sound as though the 17-country currency bloc has managed to avert a major financial collapse just in the nick of time. And maybe they have - but the devil is in the details - which are largely missing. That fact should come as no surprise to most analysts - the just completed summit is the 14th such meeting in less than two-years designed to produce "the" solution to the regions economic woes.
As the serious business of drilling down into the essence of today's agreement gets underway -- it is highly likely the current euphoria driving a sharp rally in global stock prices will morph into disillusionment as it becomes evident a convincing fiscal and political solution to the European crisis has yet to be developed. If this assessment proves accurate - stock markets will be exceptionally vulnerable to a November slide - a condition almost certain to support the prospects for steady to perhaps fractionally lower mortgage interest rates.
In other news of the day -- the government reported earlier this morning the economy, as measured by Gross Domestic Product, expanded at a 2.5% pace in the third-quarter. Most mortgage investors discounted the news a bit - assigning part of the improved performance to temporary factors not likely to be repeated in the fourth-quarter. Still, the expansion signals some relief as the economy appeared to be on the brink of another recession just weeks ago.
