Wednesday, December 16, 2009

Market Commentary for Dec. 16th 2009 post FOMC meeting update...

This week’s FOMC meeting has adjourned with no change to key short-term interest rates. This was widely expected, but the post-meeting statement did renew previous theories that the Fed will not be raising rates soon. They indicated they expect the economy to remain weak in the near future, which makes an increase to key interest rates unlikely.

Despite what can be considered favorable news for bonds, the bond market slipped during afternoon trading to close in down slightly. The stock markets also gave up earlier gains to finish the day mixed. The Dow closed down over 10 points while the Nasdaq closed up 5 points. The bond market selling led to many lenders revising their rates higher slightly this afternoon. Those who did not see an increase of .125 or .250 of discount point increase can expect to have those losses included in tomorrow’s morning rates.

This morning’s major news came from the Labor Department who reported that November’s Consumer Price Index (CPI) rose 0.4% and that the more important core data reading was unchanged from October’s level. The overall reading matched forecasts but the core data fell short of the 0.2% that was expected. This means that inflation at the consumer level of the economy was not nearly as strong as feared after yesterday’s Producer Price Index was posted. This is good news for the bond market and mortgage rates.

Today’s second release was November's Housing Starts that gave us an indication of housing sector strength. It matched forecasts of an 8.9% rise in construction starts of new homes, but this data is the least important this week’s reports. Its impact on this morning’s bond trading and mortgage rates has been minimal.

Tomorrow morning bring us the release of a moderately important when November’s Leading Economic Indicators (LEI). This 10:00 AM release attempts to measure or predict economic activity over the next three to six months. It is expected to show a sizable increase in activity, meaning that it predicts any expanding economy over the next several months. This probably will not have much of an impact on bond prices or affect mortgage rates unless it exceeds current forecasts of a 0.7% increase from October’s reading. The lower the reading, the better the news for bonds. If it shows a smaller increase, the bond market may move slightly higher, improving mortgage rates slightly.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now...

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