This Week’s Market Commentary

 

This week brings us the release of five economic reports that have the potential to affect mortgage rates. There is nothing of importance on the economic front scheduled for Monday, so look for stock trading to have the biggest influence on bond trading and mortgage pricing. We do have round two of earnings releases that can significantly impact the stock markets and help direct funds into or away from mortgage-related bonds. Strong earnings reports should fuel a stock rally that pressures bonds and leads to higher mortgage rates. On the other hand, disappointing earnings news should make bonds more attractive and lead to rate improvements, particularly on days that we don’t get any economic data.

March’s Consumer Price Index (CPI) is the first report of the week at 8:30 AM ET Tuesday. This index is one of the most important pieces of data we see each month. It is similar to last week’s PPI but measures inflationary pressures at the consumer level of the economy. If inflation is rapidly rising, bonds become less appealing to investors, leading to bond selling and higher mortgage rates. There are two readings in the index that traders watch- the overall and the core data that excludes more volatile food and energy prices. Analysts are expecting to see a 0.1%decline in the overall readings and a 0.2% rise in the core reading. The core data is the more important reading, which ideally will show a decline in prices at the consumer level.

March’s Housing Starts is the next report, also coming early Tuesday morning. It gives us a measurement of housing sector strength and mortgage credit demand by tracking starts of new home construction and the number of permits issued for future starts. This data usually doesn’t cause much movement in mortgage pricing unless it varies greatly from forecasts. It is expected to show a small increase in construction starts of new homes. Good news for the bond market and mortgage rates would be a decline in home starts, indicating housing sector weakness.

The third report of the day is March’s Industrial Production data that will be posted at 9:15 AM ET. It tracks output at U.S. factories, mines and utilities, translating into an indication of manufacturing sector strength. Current forecasts are calling for an increase in production of 0.3%. This data is considered to be only moderately important to rates, so it will take more than just a slight variance to influence bond trading and mortgage pricing. Signs of manufacturing sector strength are considered negative news for mortgage rates, so a decline in output would be good news for the bond market and mortgage shoppers.

Wednesday’s only news is the Federal Reserve’s Fed Beige Book report at 2:00 PM ET. This report is named simply after the color of its cover but details economic conditions throughout the U.S. by Fed region. Since the Fed relies heavily on the contents of this report during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any significant surprises. Generally speaking, signs of strong economic growth or inflation rising would be considered negative for bonds and mortgage rates. Slowing economic conditions with little sign of inflationary pressures would be considered favorable.

The final report of the week will be posted late Thursday morning when the Conference Board releases their Leading Economic Indicators (LEI) for March. This data attempts to measure economic activity over the next three to six months. This is considered to be a moderately important report, so we may see a slight movement in rates as a result of this data. It is expected to show no change from February’s reading, meaning it is predicting little growth in economic activity over the next several months. A decline would be considered good news for the bond market and could lead to slightly lower mortgage rates.

Overall, it will likely be a moderately active week for mortgage rates. However, unlike many weeks, the most important news comes earlier in the week. I am labeling Tuesday the most important data and Friday appears to be the best candidate for the least active day, but Monday may also be fairly quiet. The stock markets could also heavily influence bond trading and mortgage pricing any day this week as we get more corporate earnings releases. I don’t think this will be one of the more active weeks in terms of mortgage rates movement, although we should see minor changes a couple days.

This Week’s Market Commentary

April 1, 2013

This week brings us the release of four economic reports that have the potential to move mortgage rates with two of them considered to be highly important to the markets. There were also two economic reports posted Friday even though the financial markets were closed due to the Good Friday holiday. Both of those reports gave us stronger than expected results and since the markets were unable to react to them, we may see some pressure in bonds early Monday morning.

The first report is one of those highly important and comes late Monday morning when the Institute for Supply Management (ISM) will release their manufacturing index. This index gives us an important measurement of manufacturer sentiment by surveying trade executives. A reading above 50 means more surveyed executives felt business improved during the month than those who said it had worsened. This month’s report is expected to show a reading of 54.0, which would be a slight decline from February’s reading of 54.2. This means that analysts think business sentiment remained fairly flat from last month’s level. That would be relatively good news for the bond market and mortgage rates. A noticeable decline would be favorable for rates while an increase would be negative.

February’s Factory Orders will be released late Tuesday morning. This data is similar to last week’s Durable Goods Orders report, except it includes orders for both durable and non-durable goods, giving us another measurement of manufacturing sector strength. It is one of the week’s least important reports. Unless it varies greatly from forecasts of a 2.5% increase, I suspect that it will be a non-factor in the mortgage market.

Wednesday’s data does not come from a government agency or traditionally reliable source. There are a couple of private sector employment-related reports being posted, but they are not considered highly important to the bond market or mortgage rates. These reports are not always accurate in predicting results of government reports, so they usually do not have much of an impact on bond trading or mortgage pricing. We do see some reaction to them if they reveal a surprisingly significant indication of employment strength or weakness. However, I don’t believe they deserve much concern or attention in regards to mortgage pricing.

Thursday doesn’t have any monthly or quarterly economic reports set for release. It does however, bring us the weekly unemployment update and a couple of central bank announcements from overseas, which are equivalent to our FOMC meetings. Depending on what is said, they could heavily influence the global markets or be non-factors. Focus will be on the European Central Bank (ECB) with the recent events in Cyprus and what impact their situation may have on the Eurozone’s economy and financial system. More trouble ahead in the zone should boost bond prices and lower mortgage rates Thursday morning.

The biggest news of the week will come early Friday morning when the Labor Department posts March’s Employment report, giving us the U.S. unemployment rate and the number of jobs added or lost during the month. This is an extremely important report to the financial and mortgage markets. It is expected to show that the unemployment rate remained at 7.7% and that approximately 178,000 payrolls were added during the month. A higher unemployment rate and a smaller than expected payroll number would be good news for bonds and would likely push mortgage rates lower Friday morning because it would indicate weaker than thought conditions in the employment sector of the economy. On the other hand, stronger than expected results will probably fuel a stock rally that leads to a sizable increase in mortgage pricing.

February’s Goods and service Trade Balance will also be released early Friday morning. It will give us the size of the U.S. trade deficit, but is not considered to be of high importance to the markets or mortgage rates. This report usually has little impact on mortgage rates unless it shows a significant variance from forecasts and if there is no other data to drive trading that day. It is expected to show a trade deficit of $44.6 billion, but since the Employment report is also being released Friday morning, regardless of its results, I doubt this data will have an impact on mortgage rates.

Overall, Friday is the biggest day of the week due to the significance of the Employment report but I suspect we will have an active day Monday in mortgage rates also. The middle part of the week should be relatively calm, at least compared to Monday and Friday’s trading. However, we can see the markets change quickly any day, so please proceed cautiously if still floating an interest rate and closing in the near future