Greece’s Impact On U.S. Mortgtgage Rates

By Economic Focus

Looking at Greece, since that situation is certainly impacting our markets, the fear that a) the problems will spread beyond Greece, b) Greece may leave the 11-yr old single currency “euro-zone, or c) this is the beginning of the entire euro experiment are causing a drop in the value of the euro and a rally in the dollar. A general strike shut down Greek airports, tourist sites and public services and some 50,000 demonstrators marched against the planned public spending cuts and tax rises, demanding that tax cheats and corrupt politicians be put on trial.
So what does it mean to our mortgage business (rates) if Europe “tightens its belt?” This would actually continue to help our rates since it would slow the recovery in Europe, reduce the chance of inflation around the world, and allow our Fed to keep short-term rates low (monetary policy to be more accommodative) for longer than expected. A stronger US dollar is good for keeping inflation down.
How Greek vote could keep US mortgage rates low? – The referendum in Greece in which the nation rejected austerity in return for a new bailout could mean that US homeowners continue to pay less for their mortgages. While the exact impact of the vote is not known analysts are expecting it to cause some ripples throughout the financial markets and the Washington Post highlights that this could mean the Fed delaying an increase in interest rates. The interwoven nature of global economics means that any move by the European Central Bank to protect its members from a Greek exit from the euro would likely strengthen the greenback and put pressure on US exports which will further intensify calls for the Fed to leave interest rates at their historic low.
Size Does Matter – The population of Greece is relatively small, slightly less than the state of Ohio’s, with a gross domestic product is just a tad bigger than that of Kazakhstan, Algeria and Qatar.
All Eyes On China – Instead of focusing on Athens, investors should be much more worried about what’s going on in China, a country with about 1.4B people and the world’s second largest GDP.
The Shanghai Composite and Shenzhen Composite have both plunged about 30% from their highs due to concerns that stocks are in a bubble.
The Shanghai Composite, which is home to many larger, established Chinese companies, did rise more than 2% Monday. But the newer Shenzhen, which carries riskier tech stocks, fell nearly 3%.
Regulators announced Sunday that they would make even more capital available, allowing for even more margin lending, the practice of borrowing money to buy stocks. Buying on margin is incredibly risky and this could backfire.
Since China is the second largest trading partner for both Europe and the United States, it goes without saying that a healthy Chinese economy is good news for the developed world.
Economists at the Royal Bank of Scotland tweeted out a chart last week showing that U.S. banks are exposed nearly 10X more to China than Greece.
China is a massive consumer of commodities as well and matters a lot more to the global economy — and your portfolio.

 

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