Feb

14

By Larry Baer, Market Alert

The most significant influence on the trend trajectory of mortgage interest rates this week will be Greek headlines.

In the face of social unrest and rioting the Greek Parliament has approved austerity measures that have taken the country one step closer to securing a bailout package that will help it avoid financial collapse.  The next hurdle to be overcome is convincing Euro-zone finance ministers that the Greek government has the ability and the collective resolve to reduce the country’s budget by 325 million Euros this year.

The Greek political powers will have their chance when they meet with European Union and International Monetary Fund officials tomorrow.  If all goes well – by the end of the day — Greece will have successfully staved-off a sovereign debt crisis by securing a $172 billion financial rescue package.  If a firm “deal” is in place by the close of trading tomorrow – the immediate risk for March Greek debt default will be much lower.  Even so, global investors will likely choose to remain skeptical that the threat of a Greek sovereign debt collapse has passed entirely.  Against such a backdrop — look for mortgage interest rates to move sideways to perhaps fractionally higher.

Should the Greek government fail in their efforts to secure a major financial rescue package — a Greek bankruptcy will probably be confirmed no later than March 20^th.  The ramifications of this event will almost certainly send global investors scrambling for the relative safety of dollar denominated assets like Treasury debt obligations and mortgage-backed securities – a condition that will prove supportive of the prospects for steady to fractionally lower mortgage interest rates here in the United States.

Earlier this morning the Commerce Department reported January retail sales were up on a month-over-month basis – but the gain was softer than most economists had projected.  Retail sales rose 0.4% last month, a nice improvement over December’s downwardly revised unchanged reading, but well below most economists’ forecast calling for a gain of 0.7%.  Even so, the pace of overall sales in January was the fastest since October.  Unusually warm weather across much of the country and price discounting by retailers are both viewed as contributing significantly to the headline sales gain.  Excluding auto sales, necessities from general merchandise stores, gasoline stations, and grocery stores contributed to a month-over-month gain of 0.7% for this measure of consumer demand.

Consumerism is expected to remain soft in coming months as wage gains are projected to be meager.  If this assessment proves accurate, steady to declining demand for goods and services from Main Street will likely begin to cause prices on Wall Street to fall – and that is a condition almost certain to be supportive of steady to perhaps fractionally lower mortgage interest rates.

References

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