"IT'S A SMALL WORLD AFTER ALL..."

That sentiment was definitely felt in the financial markets last week, as the problems in Europe continue to dominate the headlines and influence market direction around the globe. So what exactly is going on...and what does all of this mean for our economy and for home loan rates? Read on for details. 

Due to financial instability in several countries in Europe - including Portugal, Ireland, Spain, and most notably, Greece - the European Central Bank along with the International Monetary Fund unveiled a $955 Billion loan package. Additionally, in a plan similar to our TARP plan in the US, the European Central Bank will purchase Bonds and private debt from the countries facing instability.

However, it seems that nearly a Trillion dollars doesn't go very far these days, as the announcement didn't lead to the confidence that was hoped for. There is concern about how these already financially strapped countries will pay for all this additional debt, along with skepticism over whether Greek austerity measures will take root...and many wonder if the European bailout plan is just a temporary band-aid rather than a solution. 

The result continues to be a weaker Euro, as you can see in the chart below. At $1.24 per each Euro, the price is well off where it was a few months ago, when it cost nearly $1.60 for each Euro.
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Chart: Euro versus the Dollar

Why is this important? When the Dollar was weaker, it made our imports more costly and travel to Europe more expensive. But it also made our exports far more attractive to foreign purchasers, and that has helped many of the large multi-national US corporations. As this situation is now reversing, it will likely have an adverse effect on those same multi-national corporations - which has contributed to some of the decline in Stocks we have seen.

And remember: When Stocks decline, Bonds and home loan rates are typically the beneficiary. As long as the global viewpoint that the US is a safe and stable place for Bond investments continues, Bonds and home loan rates could benefit. 

However, because it is a small world, with many factors influencing markets, a factor that could hinder this benefit is growing inflation in China. Inflation in China could spill into the US, as the increased cost of their goods could translate into higher import prices we will pay for their products. And inflation is the arch enemy of Bonds and home loan rates, so this will be important to watch as well. 

As if that weren't enough activity from around the world to keep up with, the massive added supply of debt coming into our markets from our own Treasury auctions...which can also adversely impact Bonds and home loan rates...can't be ignored, either. 

After all the news of the week and much volatility, Bond prices and home loan rates ended the week about the same as where they began. Remember that with the news coming in fast and furious from around the globe - you can always count on me to keep you informed, and I look forward to talking with you or hearing from you anytime.