Market Analysis

Markets are closed in the US but an important event which could impact mortgage rates this week is occuring in Europe today and tomorrow. Finance ministers from the 16 country Euro zone (countries which have adopted the Euro as their sole legal tender) are meeting today to discuss a solution to Greece's inability to repay its debt under current terms.  Tomorrow finance ministers from the entire European Union will meet.  The Euro zone consists of Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.  If a viable solution is reached, the "flight to quality" that has supported the current rate environment may dissipate and we could see rates inch up.  If a solution cannot be reached we could see a further move of investments into "safer" dollar denominated assets including mortgage-backed securities issued by Fannie Mae and Freddie Mac.  This would support steady to perhaps slightly lower interest rates in the short term.

The uncertainty regarding sovereign debt in Europe and continued speculation that the US stock market is due for a correction have continued to provide a distraction to the ticking time clock surrounding the Federal Reserve's exit from their mortgage purchase program.  However, the clock keeps ticking and when the alarm rings in March most analysts are projecting rates to increase .5% unless the Fed decides to extend their program. 

This week's economic calendar includes no Treasury auctions but is fairly active in terms of data releases.  Below is a recap of the key releases:

Tuesday, February 16, 2010

February Empire State (NY) Manufacturing Index – expected 18.0 reading vs 15.92 in January.

Wednesday, February 17, 2010

January Housing Starts and Building Permits – Starts expected up to a 580,000 annualized pace vs 557,000 in December. Permits expected down to a 615,000 annualized pace from 653,000 in December.

January Industrial Production and Capacity Utilization – Production expected up .8% vs .6% in December. Capacity utilization expected up to 72.6% vs 72.0% in December.

Minutes of 1/26-1/27 Federal Reserve Open Market (FOMC) meeting released – in addition to scouring the minutes for details regarding the Fed’s exit from their mortgage purchase program, analysts will be reviewing the committee’s latest quarterly economic projections.

Thursday, February 18, 2010

Initial Jobless Claims for week ended 2/13/10 – expected down 10,000

Continuing Jobless Claims for week ended 2/6/10 – expected down 38,000

January Producer Price Index (PPI) – expected up .8% vs .2% increase in December. Excluding food and energy, the core rate is expected up .1% vs no change December.

Conference Board January Leading Indicators - expected up .5% vs up 1.1% in December.

February Philadelphia Fed Business Conditions Index – expected 17.0 reading vs 15.2 reading in January.

Friday, February 19, 2010

January Consumer Price Index (CPI) – expected up .3% vs up .1% in December. The core rate (excluding food and energy) expected up .2% vs up .1% in December.