As we’ve previously said, the market is expected to trend between 3.7%-4.0% for the foreseeable future. Today, the movements are mixed, and what seems to be predominating at the moment (as it likely should) is the news that is working to increase rates: positive economic news.
New-home purchases advanced 5.5 percent to a 325,000 annual rate from the prior month. The manufacturing sector is improving, with Durable Goods showing a 2.8 percent increase for those goods meant to last at least three years (excluding cars and aircraft), and was four times larger than the median forecast of economists surveyed by Bloomberg News. A heating-up economy will work to increase interest rates (for a number of reasons mentioned previously: money shifting from bonds to stocks, an expectation for Fed rate increases, etc.)
On the opposite side, Greece, yet in crisis, has asked the EU to activate the financial rescue plan. Investors are beginning to move to the expectation that Greece will default; and such an event threatens to break apart the 11-year old single currency. So, the EU has built-in need to see Greece remain solvent. Furthermore, the challenges centered around default expectations are working to spread concern to other countries: Portugal and Spain. At the time of the formation of the Euro, noted Harvard University Economist Professor Martin Feldstein predicted that the single currency would falter because divergent economies couldn’t fit under one monetary roof. Indeed: free market will seek its own level, and cannot easily be “contained” for any economic advantage. The Euro has the possibility to either stand or fall in these events right here. So these global economic events are driving money to bonds; and domestic economic news is driving money out of bonds. And again, the predominant market-mover seems to be domestic economic news.
I’ve said before that I fear the possibility that Governmental reports can be manipulated for political purposes, so take all of what you hear with a degree of question. I believe the true underlying fundamentals (massive debt, a possibility of a second wave of mortgage distress as the five year adjustables are set to trigger this summer, and the general tightening of the commercial market suppressing true growth) to still be very challenged. But the market is moved how it is moved. If you are close to locking, this might not be a bad place to do it, as there seems to be little news on the horizon to move the market downwards. However, keep an eye on what happens as the day progresses, as a small bullish “technical” pattern might be forming. And investors — on a Friday, with Greece’s situation looming — don’t want to go into the weekend in a short position. So we may yet see a spike downward in rates, later in the day.
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