As we saw last week, the economy is simultaneously hot and cold. This makes for a strange ride on Wall Street because stocks and bonds tend to move on emotion rather than on fact. This "mob mentality" is one reason why mortgage rates have bounced up and down so much lately.
For example, we saw the following signals of economic weakness last week:
- The federal reserve cut the Fed Funds Rate by 0.250%
- Consumer Confidence surveys revealed a two-year low heading into the holidays
- Financial stocks showed dramatic weakness
But, countering that weakness, we saw these strengths:
- 166,000 jobs were added to the economy in October, nearly doubling expectations
- Third-quarter GDP rose 3.9%, higher than was expected
- Inflation (as measured by PCE) was held in-check at 1.8% annually
This week, with few economic releases that truly matter to traders, expect that markets will likely trade on questions like:
- Will the weakening dollar eventually punish the U.S. economy?
- Is the rising price of oil going to hurt holiday season sales?
- Is the credit crisis over, or just on a pause?
If traders feel confident in their "answers" to these questions, momentum will quickly build in the mortgage bond market, pushing mortgage rates in one direction or the other.
While mortgage rates are expected to remain somewhat flat this week, an unforeseen event or development could shake that balance loose. Any reaction to new news could be swift so don't wait to lock your mortgage rate -- the best rates of the week may be today.
(Image courtesy: Wall Street Journal Online)
