Economic Overview

Increased concerns about European debt issues and the pace of global economic growth has caused investors to shift to relatively safer assets over the last week.  As a result, mortgage rates have nestled down to right at the low point of the year.

Investors hoping for the European Central Bank (ECB) to expand its role in providing aid to euro zone countries have again been disappointed.  The ECB has indicated that it currently has no plans to introduce any major new aid programs.  It appears that ECB officials believe that the appropriate next step in easing the debt issues is for tighter budgetary discipline.  In addition, European Union officials suggested that working out the details of an agreement on fiscal integration between the many EU countries may take months.  Investors responded to the lack of significant progress by selling many European stocks and bonds and purchasing relatively safer assets such as US government guaranteed Treasuries and mortgage-backed securities (MBS).

Last week’s Fed statement also disappointed any investors looking for a shift in policy.  It contained no major changes from the last statement.  According to the Fed, the economy has been “expanding moderately”, which is a small upgrade from the prior statement.  The Fed gave no indication of providing additional stimulus or changing its communications policies.

A lot of economic data is due out tomorrow with Durable Orders, Core PCE inflation, Personal Income, and New Home Sales all scheduled to be released.  The mortgage markets will close early tomorrow on Friday ahead of the Christmas holiday.  Also, note that trading volume is generally very light during the final two weeks of the year, which means that mortgage rates may be more volatile than usual.