This week is data-heavy so markets will finally get to focus on fundamentals instead of fear.

For the past two weeks, uncertainty about the economy has led to psychologically-driven mortgage interest rate movements.

Rising defaults devalue mortgage holdings and many investors are now expecting the defaults levels to rise even more.

When defaults exceed expectations, it indicates that the risk of holding mortgage notes was estimated to be too low. As the risk is adjusted higher, mortgage rates are move higher, too.

This is a major reason why jumbo loans -- loans over $417,000 -- are suddenly carrying much higher interest rates.

Note: The chart above does not reflect actual mortgage rates. It is provided by Bankrate.com and it meant to show how jumbo loans are moving in a different direction from conforming, 30-year fixed rate home loans.

Markets will have some hard data upon which to reflect this week including two consumer confidence reports and the Personal Consumption and Expenditures report. The former is often to determine consumer spending patterns (although it doesn't often work) and the latter is the Federal Reserve's preferred inflationary gauge.

Expect markets to be especially volatile towards the end of Thursday and for all of Friday -- many traders will be leaving their posts early for the three-day Labor Day weekend.

Posted on August 27, 2007