Obama Statement Gives Markets Confidence Debt Limit Deal Is In The Works
Obama Statement Gives Markets Confidence Debt Limit Deal Is In The Works – 7/20/11
Fixed-income markets started weak yesterday on persistent doubts regarding whether the government will arrive at a deal to prevent a default on the US national debt in August. Positive economic news from home builders, who boosted housing construction starts by 14% from May to June, also helped, resulting in stock markets opening as much as 1% higher. At 1:30, President Obama made a statement indicating his opinion that congress appears to be moving in the right direction on deficit reduction and debt ceiling increase package. A group of 6 Senators across both parties is gaining momentum with a plan that closely mirrors the President’s own $4 trillion deficit reduction package announced over a week ago.
This morning, we’ll hear from the housing market again, as we get the Realtors® report on existing home sales. This could impact markets if it shows a sharp jump in closings, although there is some sentiment baked into current pricing that home sales likely increased to some degree in the prior month. The question is, how much. It will take a far greater than expected jump to move mortgage pricing significantly.
Elsewhere today, markets will also focus on Real Estate, as the website Zillow.com will make its IPO on stock markets today. This isn’t expected to move mortgage pricing, but will get a lot more attention than is usually merited by a $500 million event in multi-trillion-dollar markets. In Europe, it’s crunch time, with the summit on debt kicking off tomorrow. The new proposal, from Greek Prime Minister George Papandreou is for the central government of Europe to issue debt, and then relend that money to embattled countries. With a 2-year note yield that crossed 40% yesterday, Greece is shut out right now. Spain issued 12 month bills yesterday at a yield fully 1% higher than the last time it issued that instrument a month ago. Much attention will be focused on the summit tomorrow.
In the US, the government is basically out of time for a new proposal. The plan to escape default will have to come from one of the plans on the table, and the “Group of 6 (now 7)” plan appears most likely. This plan would cut sharply into many services, including cuts to Medicare and Social Security, while adding revenue through tax increases principally on those earning more than $250,000, but would eliminate the Alternative Minimum Tax. The net result would be $4 Trillion less new borrowing over the next 10 years. Or at least it would be until the next time we need to spend more than we are right now. . . . Mortgage pricing will likely not move too much today, but anything could happen tomorrow, as we have all manner of reports on unemployment, housing, and more. I don’t see enough happening to seriously impact pricing, though.
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