This Week’s Market Commentary

This Week’s Market Commentary

September 30, 2013

This week brings us the release of only three monthly economic reports that are likely to influence mortgage rates. However, two of those three releases are extremely important to the financial and mortgage markets and can cause significant movement in mortgage rates if they show surprises. We also have the pending government shutdown early this week that will influence trading and could affect two of those scheduled economic releases.

There is nothing of importance scheduled for release Monday in terms of economic data. However, it will still be an interesting day because it appears that a deal in Washington D.C. to avoid a government shutdown is not going to happen. This means that many government operations will come to a halt at midnight ET Monday evening. While that is a problem outside the mortgage world, it also should be noted that there are some specific problems to mortgage shoppers. As of Tuesday, most government mortgage loans (FHA/USDA) would come to a standstill but VA loans should not be affected unless the shutdown turns into an extended period. All conventional loans should proceed without issue. And it is my understanding that the National Flood Insurance Program will not be affected by a temporary shutdown either.

Still, the impact on the financial and mortgage markets could be significant. It is widely believed that a shutdown cannot be avoided at this point, so we can expect to see the markets open Monday reflecting that result. Also complicating matters is the fact that a shutdown means we will not get the economic reports that are compiled and posted by government agencies this week, one of which is extremely important to the markets. That would be Friday’s monthly employment report from the Labor Department.

Tuesday has the first report of the week when the Institute for Supply Management (ISM) posts their manufacturing index for September at 10:00 AM ET. The ISM is not a governmental agency, so the shutdown will not impact this release. The index measures manufacturer sentiment and it can be highly influential on the markets and mortgage rates. Analysts are expecting to see a small decline from August’s 55.7 reading, meaning surveyed manufacturers felt business conditions worsened from the previous month. The 50.0 benchmark is extremely important since a reading below that level means more surveyed executives felt business worsened in the month than those who said it had improved. This data is important not only because it measures manufacturer sentiment, but it is also very recent data. Some economic releases track data that is 30-60 days old, but the ISM index is only a few weeks old. Actually, it is the first report that we see each month. If it reveals a reading below 55.1, meaning sentiment fell short of expectations, we should by theory see the bond market move higher and mortgage rates fall Tuesday.

Wednesday’s monthly economic data will come from the Commerce Department, who are set to post August’s Factory Orders data at 10:00 AM ET. This manufacturing sector report is similar to last week’s Durable Goods Orders release, but also includes orders for non-durable goods. It can impact the bond market enough to slightly change mortgage rates if it varies from forecasts by a wide margin. Analysts are forecasting a 0.3% increase in new orders, meaning manufacturing activity grew slightly in August. Good news for the bond market and mortgage pricing would be a sizable decline in orders.

The Labor Department is scheduled to post September’s Employment report early Friday morning. This report will reveal the U.S. unemployment rate, number of new payrolls added or lost during the month and average hourly earnings. These are considered to be very important readings of the employment sector and can have a huge impact on the financial markets. The ideal scenario for the bond market is rising unemployment, falling payrolls and a drop in earnings.

If we do see this report and it gives us weaker than expected readings, bond prices should move higher and mortgage rates should move lower Friday. However, stronger than forecasted readings could cause a sizable spike in mortgage pricing and erase the improvement in rates since the Fed opted to delay tapering their bond purchases. Analysts are expecting to see the unemployment rate remain at 7.3%, an increase of 183,000 new jobs from August’s level and a 0.2% increase in earnings.

Overall, I am expecting to see a good amount of volatility in the markets and mortgage rates this week. Based on an economic calendar, Tuesday and Friday are the key days but the impasse in Washington puts into question whether we will even see some of that data let alone if it will be the biggest influence on this week’s trading. Monday is likely to be an extremely active day barring a last minute trick during early trading to avoid the shutdown Monday night. Tuesday will also be a key day with the ISM index, regardless of the outcome in Washington. The rest of the week’s data is in limbo, so it is difficult to make a prediction beyond that point. Accordingly, it would be prudent to maintain fairly constant contact with your mortgage professional this week if still floating an interest rate as we may see significant moves multiple days.

This Week’s Market Commentary

September 23, 2013

This week brings us the release of six relevant economic reports for the bond market to digest in addition to two potentially influential Treasury auctions. Most of the reports are considered to be of moderate to fairly high importance to the markets, so they do have the potential to affect mortgage rates although I am expecting to see less volatility in the financial and mortgage markets than we saw last week.

The first release of the week is September’s Consumer Confidence Index (CCI) late Tuesday morning. This Conference Board index will be posted at 10:00 AM ET and gives us a measurement of consumer willingness to spend. It is expected to show a decline in confidence from last month’s reading, indicating that consumers were less optimistic about their own financial situations than last month, therefore, less likely to make a large purchase in the near future. This is good news for the bond market and mortgage rates because consumer spending fuels economic growth. Analysts are calling for a reading of approximately 80.0, down from August’s 81.5 reading. The smaller the reading, the better the news it is for the bond market and mortgage rates.

August’s Durable Goods Orders is the week’s most important data and will be posted early Wednesday morning. This report gives us an indication of manufacturing sector strength by tracking orders for big-ticket items at U.S. factories. Big-ticket products are items that are expected to last three or more years such as electronics and appliances. Analysts are expecting to see a small increase of 0.4% in new orders, indicating minor growth in the manufacturing sector. A sizable decline could help boost bond prices and cause mortgage rates to drop Wednesday because signs of economic weakness make longer-term securities more appealing to investors. However, a sizable increase would indicate a stronger than expected manufacturing sector and would likely help push mortgage rates higher. It is worth noting that this data is known to be quite volatile from month-to-month, so a slight or moderate change may not affect mortgage pricing.

August’s New Home Sales will be released late Wednesday morning. The Commerce Department is expected to say that sales of newly constructed homes rose last month, indicating housing sector strength. This report will likely not have a noticeable impact on mortgage rates unless its readings differ greatly from forecasts. This is the week’s least important report in terms of potential impact on mortgage rates, partly because it covers only the small portion of all homes sales that last week’s Existing Home Sales report did not.

The Treasury will sell 5-year Notes Wednesday and 7-year Notes Thursday, which will tell us if there is an appetite for medium-term securities. If investor demand in these sales is strong, particularly from international buyers, the broader bond market should move higher, pushing mortgage rates lower. But a lackluster interest from investors could lead to bond selling and higher mortgage pricing. The results of the sales will be announced at 1:00 PM ET each day, so any reaction to the results will come during afternoon trading Wednesday and Thursday.

Thursday morning has the final revision to the 2nd Quarter Gross Domestic Product (GDP). Since this data is aged now and the preliminary reading of the 3rd Quarter GDP will be released next month, I don’t see this revision having much of an impact on the financial markets or mortgage pricing. The GDP is important because it is the total sum of all goods and services produced within the U.S. and is considered the best measurement of economic activity. It is expected to show no change from the previous estimate of a 2.5% increase in the GDP. It will take a fairly large revision for this data to move mortgage rates Thursday.

Friday has two reports scheduled that may influence mortgage rates. The first is August’s Personal Income and Outlays early Friday morning. It gives us an indication of consumer ability to spend and current spending habits. This is relevant to the markets because consumer spending makes up over two-thirds of the U.S. economy. Rising income generally indicates that consumers have more money to spend, making economic growth more of a possibility. This is negative news for the bond market and mortgage rates because it raises inflation and economic growth concerns, making long-term securities such as mortgage-related bonds less attractive to investors. It is expected to show an increase of 0.4% in income and a 0.2% increase in spending. If we see weaker than expected readings, the bond market should react positively, leading to lower rates Friday.

The second report of the day is the University of Michigan’s revised Index of Consumer Sentiment for September. The preliminary reading that was released earlier this month showed a 76.8 reading. Analysts are expecting to see a small upward revision, meaning consumer confidence was slightly stronger than previously thought. As with Tuesday’s CCI release, a lower than expected reading would be good news for bonds and should help improve mortgage rates.

Overall, I don’t see an obvious choice for most important day of the week but Wednesday does have two economic reports scheduled including the most important of the six. So, let’s label it as likely to be most active although Friday does have two reports scheduled also. The least important day will probably be Monday with nothing of relevance scheduled. I suspect we will see changes in mortgage rates multiple days this week, but in small increments rather than sizable moves.

Daily Commentary for 09/18/13

WEDNESDAY AFTERNOON UPDATE:
This week’s FOMC meeting has adjourned with no change to key short-term interest rates, which was widely expected. However, the big surprise came in the announcement that the Fed was not ready to start tapering their bond buying programming, deciding to maintain the current pace of $85 billion a month. That was certainly not expected by the majority of market traders and analysts, who were calling for a reduction of somewhere between $5 billion and $20 billion a month and keeping the timetable of ending the program altogether mid-2014. I can say I am a little surprised at the decision, although I was predicting a small token reduction instead of a big move. But, the basis they are using for not adjusting their purchases is exactly what I used on my prediction….. that while economic conditions did improve over the summer months, it was at a slower pace than the Fed was expecting to see and weaker than what was needed to make a significant downward revision to the amount of bonds being purchased under QE3.

There is so much to address from this afternoon’s events and so little room to post it. To summarize what happened, the Fed decided not to adjust their bond buying schedule and did not set an estimated date for that to happen. Yes, this more or less kicks the can down the road to be dealt with at the next FOMC meeting or the following one. Chairman Bernanke and friends appear to be more concerned about the economy sustaining growth on its own than they did before, so a delay in removing any stimulus is warranted. They also revised lower some economic growth predictions and indicated that 12 of the 17 FOMC members that were at this meeting now feel that key short-term interest rates will remain at current levels until 2015. The news was taken as extremely positive for stocks and bonds. The Dow rose to a new record high, currently up 130 points while the Nasdaq has risen 35 points. The bond market is currently up 37/32, which should cause an intra-day improvement to mortgage rates of approximately .375 - .625 of a discount point.

August's Housing Starts was posted early this morning, revealing a 0.9% increase in new construction starts of housing projects. This was a bit lower than expectations, hinting at a weaker than thought new home portion of the housing sector. However, the variance was not significant considering the report is only moderately important to the markets. That has prevented the data from having much of an impact on today’s bond trading or mortgage pricing.

Tomorrow has three pieces of economic data set for release, but none of them are considered to be highly important so I would not be surprised to see this afternoon’s rally extend into morning trading. The first report will come from the Labor Department at 8:30 AM ET when they will give us last week’s unemployment numbers. They are expected to announce that 340,000 new claims for unemployment benefits were filed last week. This would be a significant jump from the previous week’s 292,000 initial claims, but this much of a move was expected due to complications in last week’s report. The Labor Day holiday affected numbers because government offices were closed and rumors that two states did not get all claims reported due to technical issues lead us to believe we will see a large correction in this week’s release. Because of the uncertainty, tomorrow’s release will likely have even less impact on the markets than it usually does, which often is minimal.

The second and third reports of the day will be released at 10:00 AM ET. The second report is August's Existing Home Sales from the National Association of Realtors. This report will give us an indication of housing sector strength by tracking home resales. It is expected to show a small decline from July's sales, however, this data probably will be neutral towards mortgage pricing unless its results vary greatly from forecasts.

The Conference Board will post its Leading Economic Indicators (LEI) for August at 10:00 AM tomorrow. The LEI index attempts to measure economic activity over the next three to six months. It is expected to show a 0.6% increase, meaning that it is predicting moderate growth in economic activity over the next several months. A larger increase would be considered negative news for bonds and could lead to a minor increase in mortgage rates tomorrow.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now...

This Week’s Market Commentary

This Week’s Market Commentary

September 9, 2013

This week brings us the release of only three pieces of monthly economic data in addition to two Treasury auctions that have the potential to affect mortgage rates. Despite the low number of reports, we still will likely see a fair amount of movement in the markets and mortgage pricing due to the importance of those economic reports and the likelihood of the Syria issue being in the spotlight with congress coming back into session. The economic data is set for late in the week and the Treasury auctions will take place mid-week. It is hard to say that exactly which day a vote will come in Congress on how to respond to what happened in Syria, but we can expect it to be in the forefront of the news media and on traders’ minds.

There is nothing of relevance scheduled to be posted or announced Monday, Tuesday or Wednesday morning with possible exception to news out of Washington regarding the Congressional proceedings. In the absence of anything on the schedule, look for the stock markets to affect bond trading and mortgage pricing early this week. As long as no major news or events transpire, stock strength will probably lead to bond weakness and higher mortgage rates. If the major stock indexes fall from current levels, bond prices should rise, pushing mortgage rates lower.

There are two Treasury auctions this week that have the potential to influence mortgage rates. The first is Wednesday’s 10-year Treasury Note auction, which will be followed by a 30-year Bond auction Thursday. It is fairly common to see some weakness in bonds before these sales as investors prepare for them. If the sales are met with a decent demand from investors, indicating that interest in longer-term securities such as mortgage-related bonds is strengthening, the earlier losses are usually recovered after the results are announced. The results of each sale will be posted at 1:00 PM ET of auction day. If demand was strong, particularly from international investors, we should see mortgage rates improve during afternoon trading Wednesday and Thursday. However, weak levels of interest could lead to broader selling in the bond market that could push mortgage rates higher.

Friday morning has all three pieces of economic data scheduled with two of them considered to be major releases. Those highly important reports are August’s Retail Sales and Producer Price Index (PPI), both of which will be posted at 8:30 AM Friday. The sales report from the Commerce Department will give us a very important measurement of consumer spending, which is extremely relevant to the markets because it makes up over two-thirds of the U.S. economy. Current forecasts are calling for a 0.4% increase in sales. Analysts are also calling for a 0.3% rise in sales if more volatile auto transactions are excluded. Larger than expected increases would be considered bad news for bonds and likely lead to an increase in mortgage pricing since it would indicate economic growth.
The Labor Department will post August’s Producer Price Index (PPI), giving us an important measurement of inflationary pressures at the producer level of the economy. There are two readings that analysts follow in this release. They are the overall index and the core data reading. The core data is the more important of the two since it excludes more volatile food and energy prices. Analysts are predicting a 0.2% increase in the overall index and a rise of 0.1% in the core data. Stronger than expected readings could fuel inflation concerns in the bond market. That would be bad news for bonds and mortgage rates because inflation is the number one nemesis of the bond market as it erodes the value of a bond’s future fixed interest payments. As inflation becomes more of a concern in the markets, bonds become less appealing to investors, leading to falling prices, rising yields and higher mortgage rates.

The last release of the week will be posted by the University of Michigan late Friday morning. Their Index of Consumer Sentiment will give us an indication of consumer confidence, which projects consumer willingness to spend. If a consumer’s confidence in their own financial situation is rising, they are more apt to make large purchases in the near future. But, if they are growing more concerned about their job security or finances, they probably will delay making that large purchase. This influences future consumer spending data and therefore, impacts the financial markets. It is expected to show a reading of 82.0 that would mean confidence was nearly unchanged from August’s level of 82.1. That would be considered slightly favorable news for bonds and mortgage rates. Good news for mortgage shoppers would be a sizable decline in the index.

Overall, Friday is the best candidate to be labeled most important day with all of the week’s economic data scheduled, but we could see noticeable movement in rates multiple days. It is unlikely that we will get a vote in Congress on Syria during business hours Monday, so with nothing else scheduled for release it looks to be the least important day of the week. The Treasury auctions raise the possibility of afternoon volatility in the middle part, although I would not be surprised to see afternoon changes to mortgage pricing other days also. With the FOMC meeting looming next week, any surprises this week will affect theories about what the Fed will do regarding their current bond buying program and lead to noticeable changes in the markets. Therefore, if still floating an interest rate and closing in the near future, I strongly recommend maintaining contact with your mortgage professional the entire week.

This Week’s Market Commentary

This Week’s Market Commentary

August 26, 2013

This week has five economic reports scheduled for release that are relevant to mortgage rates in addition to two Treasury auctions that can potentially affect rates. There is data being posted four of the five days with Wednesday the only day with nothing scheduled, but none of the reports are considered to be highly important or key data. Still, most of the week’s releases carry enough significance to affect mortgage rates if their results vary from forecasts.

The Commerce Department will post July’s Durable Goods Orders early Monday morning, giving us an important measure of manufacturing sector strength. This report tracks orders at U.S. factories for big-ticket items, or products that are expected to last three or more years such as appliances, electronics and airplanes. Analysts are expecting to see a decline of 4.5% in new orders, indicating manufacturing sector weakness. This data is known to be quite volatile from month to month, so a decline of this size doesn’t raise too much concern about the economy. However, a decent sized decline is good news for the bond market and mortgage rates as it means manufacturing activity is likely softening. A secondary reading the excludes more volatile transportation-related orders is expected to rise 0.5%. The softer the reading, the better the news it is for the bond and mortgage markets.

Tuesday also has only one report worth watching. The Conference Board will post their Consumer Confidence Index (CCI) for August at 10:00 AM ET Tuesday. This index measures consumer sentiment about their personal financial situations, which helps us measure consumer willingness to spend. If consumers are feeling more confident in their own finances, they are more apt to make a large purchase in the near future, fueling economic growth. A decline in confidence would indicate that surveyed consumers probably will not be buying something big in the immediate future. That would be a sign of economic weakness and should drive bond prices higher, leading to lower mortgage rates Tuesday. It is expected to show a reading of 77.0, which would be a decline from July’s 80.3. The lower the reading, the better the news for bonds and mortgage rates.

Thursday’s only monthly or quarterly data is the first revision to the 2nd Quarter Gross Domestic Product (GDP) at 8:30 AM ET. The GDP is the total of all goods and services produced in the U.S. and is considered to be the best measurement of economic growth or contraction. This reading is the second of three that we see each quarter. Last month’s preliminary reading revealed that the economy grew at an annual rate of 1.7%. Thursday’s revision is expected to show that the GDP actually rose 2.1%, meaning the economy was stronger than thought from April through June. A smaller than expected reading should help lower mortgage rates, especially if the inflation portion of the release does not get revised higher. There will be a final revision issued next month, but it probably will have little impact on mortgage rates since traders will be more interested in the current quarter’s activity.
Friday is a multi-release day with two pieces of economic data set to be posted. July’s Personal Income and Outlays report is the first at 8:30 AM ET. This data will give us a measure of consumer ability to spend and current spending habits. Rising income means consumers have more money to spend. It is expected to show an increase of 0.1% in income and a 0.3% increase in spending. Since consumer spending makes up over two-thirds of the U.S. economy, weaker than expected numbers would be considered good news for the bond market and mortgage pricing.

The second report of the morning will be the University of Michigan’s revised Index of Consumer Sentiment for August. This sentiment index helps us track consumer willingness to spend similarly to Tuesday’s CCI. It is expected to show no change from August’s preliminary reading of 80.0. If it revises lower, consumers were less confident about their personal financial situations than previously thought. This would be good news for the bond market and mortgage rates because waning confidence usually means that consumers are less likely to make large purchases in the near future. As with the CCI index, the lower the reading the better the news for mortgage shoppers.
Also worth mentioning are a couple of Treasury auctions that may affect bond trading and mortgage rates this week. There auction several days, but the two relevant ones are Wednesday’s 5-year Note and Thursday’s 7-year Note sales. Results of the auctions will be posted at 1:00 PM ET each day. If investor interest is strong in the auctions, we can expect the broader bond market to rally and mortgage rates to move lower. However, lackluster demand could lead to bond selling and higher mortgage rates Wednesday and Thursday afternoons.

Overall, I am expecting to see the most movement in rates Thursday or Friday, but Monday’s Durable Goods report could be the week’s most important report if the GDP shows no surprises. Wednesday looks to be the lightest day with nothing of importance scheduled except the moderately important Treasury auction. We saw bonds rally Friday after a moderately important housing report showed much weaker than expected results. If that momentum can carry into this week’s trading and the data doesn’t show significantly stronger than forecasted results, we could see rates start a downward trend. The yield on the benchmark 10-year Treasury Note fell to 2.82% Friday from 2.90% at Thursday’s close. Look for Monday’s trading to help determine if Friday’s rally was a knee-jerk reaction that cannot be sustained or if the overall tone in the bond market has changed and rates will continue to move lower. Even though none of this week’s economic data is considered to be a market mover, we still should see plenty of activity and movement in rates. Therefore, please proceed cautiously if still floating an interest rate and closing in the near future.

This Week’s Market Commentary

August 12, 2013

This week brings us the release of seven pieces of economic data that are relevant to the bond market and mortgage pricing. There is no relevant data scheduled for release Monday, so look for the stock markets to drive bond trading and mortgage rates. There is data scheduled for every other day with most of the reports coming the latter part of the week but the key releases are set for the middle days. This means that the week may start off slow, however, we are likely to see plenty of movement in mortgage rates as the week progresses.

July’s Retail Sales data early Tuesday morning is the first and one of the highly important reports scheduled this week. This data is very important to the financial and mortgage markets because it helps us measure consumer spending. Since consumer spending makes up over two-thirds of the U.S. economy, any data related to it can cause a fair amount of movement in the markets. A smaller than expected increase would indicate that consumers are spending less than previously thought, pointing towards slower economic growth. This is good news for the bond market and mortgage rates as it eases inflation concerns and makes long-term securities such as mortgage-related bonds more attractive to investors. Current forecasts are calling for an increase of 0.2% in retail-level sales. Ideally, the bond market would like to see a decline in sales although no change from June would be construed as favorable.

One of the week’s key inflation indexes will be Wednesday’s only relevant data. July’s Producer Price Index (PPI) will give us an indication of inflationary pressures at the producer level of the economy at 8:30 AM ET. There are two readings in the report- the overall index and the core data reading. The core data is more important because it excludes more volatile food and energy prices that can change significantly from month to month. Current forecasts call for a 0.3% rise in the overall reading and a 0.2% increase in the core data. A larger increase in the core data could push mortgage rates higher Wednesday morning. If it reveals weaker than expected readings, we may see bond prices rise and mortgage rates improve as a result.

The PPI will be followed by the even more important Consumer Price Index (CPI) early Thursday morning. The Consumer Price Index is one of the most important reports we see each month as it measures inflation at the consumer level of the economy. As with the PPI, there are also two readings in the report. Analysts were expecting to see a 0.2% increase in the overall index and a 0.2% rise in the core data reading. Declines in the readings, especially in the core data, should lead to lower mortgage rates since it would mean inflation is still not a threat to the economy. On the other hand, stronger than expected readings will likely lead to an increase in mortgage pricing Thursday
July’s Industrial Production is Thursday’s second report with a release time of 9:15 AM ET. It gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is considered to be moderately important to the markets and can influence mortgage rates slightly. Expectations are for a 0.4% increase in production, indicating some strength in the manufacturing sector. Good news for the bond market and mortgage rates would be a decline in output, signaling sector weakness. However, the CPI report will draw the most attention Thursday.
Friday has the remaining three pieces of data scheduled, but none are considered to be highly important to mortgage rates. July’s Housing Starts is the first at 8:30 AM ET, which will give us an indication of housing sector strength and future mortgage credit demand. It usually doesn’t cause much movement in mortgage rates unless it varies greatly from forecasts and is expected to show a fairly sizable increase in construction starts of new homes. The lower the number of starts, the better the news for the bond market, as it would indicate a weaker than expected housing sector.
Employee Productivity and Costs data for the second quarter will also be posted early Friday morning. It will give us an indication of employee output per hour. High levels of productivity are believed to allow the economy to grow without fears of inflation. I don’t see this being a big mover of mortgage rates either, but it may influence rates slightly during morning trading. Analysts have predicted no change in productivity during the second quarter and a 0.3% decline in labor costs. A sizable increase in productivity reading and a larger than expected drop in costs could help improve bonds, contributing to lower mortgage rates Friday.

The final report of the week will come from the University of Michigan, who will release their Index of Consumer Sentiment for August at 9:55 AM Friday. This index gives us a measurement of consumer willingness to spend. If confidence is rising, then consumers are more apt to make large purchases, helping fuel economic growth. By theory, a drop in confidence should boost bond prices, but this data is considered moderately important and carries much less significance than some of the week’s other reports. Analysts are expecting to see a reading of 85.3, which would be a slight increase from July’s final reading of 85.1. The smaller the reading, the more concerned consumers are in their own financial situations and the better the news for mortgage rates.

Overall, I am expecting Tuesday or Thursday to be the most important days of the week. Tuesday’s Retail Sales report and Thursday’s CPI are the two single most influential reports scheduled over the next five days. Since Tuesday has the Retail Sales data and consumer level inflation is not expected to be an immediate threat, I am leaning towards it as the day that we will see the most movement in mortgage rates. I am expecting to see the least movement Monday, unless the stock markets stage a significant rally or sell-off. With so much going on this week, I strongly recommend maintaining contact with your mortgage professional if still floating an interest rate.

 

This Week’s Market Commentary

August 5, 2013

This week is extremely light in terms of the number of economic reports that are scheduled for release that may influence mortgage rates. In fact, there is only one monthly report scheduled and it is not considered to be highly important to the markets. There are several Treasury auctions scheduled during the week, but only two of them are worth watching. This makes it likely that stock movement will heavily influence bond trading and mortgage rates several days.

June’s Trade Balance is the only monthly economic data, scheduled to be posted early Tuesday morning. It gives us the size of the U.S. trade deficit but is considered to be of low importance to the bond market and usually has little impact on mortgage rates. Analysts are expecting to see a $43.4 billion trade deficit, but it will take a wide variance to directly influence mortgage pricing.

The two important Treasury auctions will take place during the middle part of the week. The 10-year Note auction will be held Wednesday while 30-year Bonds will be sold Thursday. We often see some weakness in bonds ahead of the sales as the firms participating prepare for them. However, as long as they are met with decent demand from investors, the firms usually buy them back. This tends to help recover any presale losses. But, if the sales are met with a lackluster interest from investors- particularly international buyers, the bond market may move lower after the results are posted and mortgage rates may move higher. Those results will be announced at 1:00 PM each sale day.
Also worth noting are several speaking engagements by multiple Fed members this week. These appearances are common and many go unnoticed on a regular basis. However, with no important economic data scheduled to drive bond trading and the broader financial markets, their words will draw even more attention than usual. Especially since last Friday’s Employment report disappointed many analysts and there is now more debate about when the Fed may start tapering their current bond-buying program (QE3). Any statements related to that topic during their speeches this week will become extremely newsworthy and could easily affect mortgage rates.

Overall, it is difficult to label one particular day as the most important with so little to choose from. It will be interesting to see if Friday’s bond rally will hold in Monday’s trading. If so, we should see an improvement in rates Monday due to improvements in bonds late Friday afternoon. I never recommend straying far from your mortgage professional if still floating an interest rate, however, the markets and mortgage pricing are likely going to be a calmer the next several days than they have during recent weeks. That is unless, something unexpected happens, which is always a possibility.

 

 

This Week’s Market Commentary

This Week’s Market Commentary

July 29, 2013

This week brings us the release of seven economic reports that may impact mortgage rates, some of which are considered to be highly influential. In addition to the economic data, there is also another FOMC meeting that certainly has the potential to cause chaos in the financial and mortgage markets. There is important data scheduled every day except Monday, so there is a strong likelihood of seeing noticeable mortgage rate movement several days and possibly multiple intra-day revisions.

The first economic data of the week comes late Tuesday morning when the Conference Board posts their Consumer Confidence Index (CCI) for July at 10:00 AM ET. This index measures consumer sentiment, giving us an idea of consumer willingness to spend. If consumers are more confident in their own financial and employment situations, they are apt to make large purchases in the near future. This is important because consumer spending makes up such a large portion of our economy. If the CCI reading is weaker than expected, meaning that consumers were less confident than thought and likely will delay making a large personal purchase, we may see bond prices rise and mortgage rates drop Tuesday morning. Current forecasts are calling for a reading of 81.6, which would be a slightly higher reading than June’s 81.4 and indicate consumers are a little more comfortable with their finances than they were last month.

Wednesday morning has two reports scheduled but one is much more important to the markets than the other. The extremely important report is the preliminary reading of the 2nd Quarter Gross Domestic Product (GDP), which is considered to be the best indicator of economic growth or weakness. It is the total of all goods and services that are produced in the U.S. and usually has a great deal of influence on the financial markets. This reading is arguably the single most important report we get regularly. Current forecasts are estimating that the economy grew at a 1.1% annual rate during the second quarter. A faster pace will probably hurt bond prices, leading to higher mortgage rates Wednesday. But a smaller than expected reading would likely fuel a bond market rally and lead to lower mortgage pricing since it would indicate the economy was not as strong as many had thought.
The second report Wednesday will be Employee Productivity and Costs data for the second quarter, also at 8:30 AM ET. It will give us an indication of employee output per hour worked. High levels of productivity are believed to allow the economy to grow without fears of inflation. I don’t see this being a big mover of mortgage pricing, partly because it comes the same time as the GDP reading. Analysts are currently expecting to see an increase in productivity of 0.4%. A large increase in productivity and a decline in costs would be ideal news for mortgage rates, but I suspect that this data will have little impact on Wednesday’s mortgage rates.

The fifth FOMC meeting of the year is a two-day event that will begin Tuesday and will adjourn at 2:00 PM ET Wednesday. This is not a meeting that will be followed by a press conference with Chairman Bernanke. The meeting is expected to yield no change to key interest rates, but there is speculation that the post meeting statement may clarify the Fed’s position or estimation of when they will begin to slow their current $85 billion monthly bond buying program (QE3). This topic has caused a firestorm in the markets multiple times over the past two months, and not always logically. Therefore, it is difficult to make a prediction of what to expect. Theoretically, we would like to hear something that would hint the Fed will not start tapering their purchases in September as many analysts currently believe. One would think that since the current consensus had September as the beginning, hearing it again would not have a negative impact on the bond market. Unfortunately, logic and history does not seem to be a good indicator on how the markets will react to such news recently. That leaves us little to base a prediction on, other than to hold our breath and hope sanity quickly returns to the markets.

Thursday has only one report worth watching and it is one of the more important monthly reports we get. The Institute for Supply Management (ISM) will release their manufacturing index for July late Thursday morning. This index measures manufacturer sentiment by surveying trade executives about business conditions during the month and is considered to be of high importance to the markets. One reason it draws so much attention is that this report is the first released each month that tracks the preceding month’s activity. A reading above 50.0 means more surveyed executives felt that business improved this month than those who said it had worsened. June’s reading came in at 50.9, above that important threshold. Thursday’s release is expected to show a reading of 51.5, meaning surveyed executives felt business conditions improved from June to July. Ideally, we would like to see a decline as it would point towards a softening manufacturing sector, especially is it falls below 50.0.
Friday has three reports scheduled for release that are likely to influence bond trading and mortgage pricing. The first is arguably the most important report we see each month when the Labor Department posts their monthly Employment report for July. This report gives us the U.S. unemployment rate, number of jobs added or lost during the month and the average hourly earnings reading for July. The best scenario for the bond market is rising unemployment, a sizable loss of jobs and little change in earnings.

While many believe the preliminary reading to the GDP is the single most important report in general, it is posted quarterly rather than monthly like the Employment report. Friday’s report is expected to show that the unemployment rate slipped 0.1% to 7.5% last month while approximately 175,000 jobs were added to the economy. Due to the importance of these readings, we will most likely see quite a bit of volatility in the markets and mortgage pricing Friday morning following their 8:30 AM ET posting.
June’s Personal Income and Outlays data will also be posted early Friday morning. This report helps us measure consumer ability to spend and current spending habits. If it shows sizable increases, bond selling could lead to higher mortgage rates. Current forecasts are calling for an increase of 0.5% in income and a 0.4% rise in spending. A larger than expected increase in income means consumers have more funds to spend, which is not favorable to bonds because consumer spending makes up over two-thirds of the U.S. economy. We would like to see declines in spending and income that would indicate economic weakness, but the smaller the increase in each, the better the news for mortgage rates.

The third report of the day and final release of the week will be June’s Factory Orders data at 10:00 AM ET Friday. It helps us measure manufacturing sector strength by tracking orders for both durable and non-durable goods during the month of June. It is similar to last week’s Durable Goods Orders report that tracks orders for big-ticket items only. Since a significant portion of the data was released last week, this report likely will not have much of an impact on the markets. Analysts are expecting to see an increase in new orders of approximately 2.2%. A smaller than expected increase would be considered good news for bonds and mortgage pricing, but due to the importance of the morning’s other data, I don’t believe this report will have much of an influence on Friday’s mortgage rates, regardless of its results.

Overall, I am expecting to see an extremely active week for financial markets and mortgage rates. I think that the most important day is either going to be Wednesday due to the GDP release and FOMC adjournment or Friday with July’s employment numbers being posted. The least important day is Monday since nothing of importance is scheduled. I suspect we will see plenty of movement in not only mortgage rates, but also the financial markets in general this week. If still floating an interest rate, I would definitely maintain constant contact with my mortgage professional as it is going to be an interesting five days.

This Week’s Market Commentary

May 13, 2013

This week brings us the release of seven economic reports that may have the potential to influence mortgage rates. There is data scheduled to be posted four of the five days, including Monday. We saw plenty of movement in rates last week despite the lack of factual economic reports. Unfortunately for mortgage shoppers, they moved higher and this week may not be any different. Therefore, please proceed cautiously as this could be another ugly week for rates if the data gives us stronger than expected results.

The first piece of data this week is April’s Retail Sales at 8:30 AM ET Monday morning. This is an extremely important report for the financial markets since it measures consumer spending. Consumer spending makes up over two-thirds of the U.S. economy, so this data can have a pretty significant impact on the markets. Current forecasts are calling for a 0.3% decline in sales from March to April. A weaker than expected level of sales should push bond prices higher and mortgage rates lower Monday morning as it would signal that economic activity may not be as strong as thought. However, an unexpected increase could renew theories of economic growth that would lead to more stock buying and bond selling that would push mortgage rates higher.

There is nothing of relevance scheduled for Tuesday, but Wednesday has two reports that we will be watching. April’s Producer Price Index (PPI) is the first at 8:30 AM ET. It helps us measure inflationary pressures at the producer level of the economy. If this report reveals weaker than expected readings, indicating inflation is not a concern at the producer level, we should see the bond market improve. The overall index is expected to fall 0.5%, while the core data that excludes more volatile food and energy prices has been forecasted to rise 0.1%. A decline in the core data would be ideal for mortgage shoppers because inflation is the number one nemesis for long-term securities such as mortgage-related bonds. As inflation rises, longer-term securities become less appealing to investors since inflation erodes the value of those securities’ future fixed interest payment. That is why the bond market tends to thrive in weaker economic conditions with low levels of inflation.
The second report of the day Wednesday is April’s Industrial Production at 9:15 AM ET. It measures manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to show a 0.2% decline in production, indicating that manufacturing activity is growing. A larger than expected decrease in output would be good news for the bond market and mortgage rates because it would indicate that the manufacturing sector is not as strong as thought. This report is considered to be moderately important, so it will likely need to show unexpected strength or weakness to cause movement in mortgage rates. The PPI report will probably be the biggest influence on bond trading and mortgage rates Wednesday.

April’s Consumer Price Index (CPI) will also be posted at 8:30 AM ET Thursday. It is the sister report of Wednesday’s PPI report, but measures inflationary pressures at the more important consumer level of the economy. These results will be watched closely and could lead to significant volatility in the bond market and mortgage pricing if they show any surprises. Current forecasts are calling for a 0.2% decline in the overall index and a 0.2% rise in the core data reading. As with the PPI, the core data is the more important of the two readings and will help dictate mortgage rate direction.

Also early Thursday will be the release of April’s Housing Starts. This data measures housing sector strength and mortgage credit demand by tracking newly issued permits and actual starts of new home construction. It is expected to show a drop in new starts from March’s reading, hinting at housing sector weakness. However, since this report is not considered to be of high importance to the bond market, it likely will have little impact on mortgage rates unless it varies greatly from forecasts, especially with a key measurement of inflation being posted at the same time.

The last two pieces of data come late Friday morning. May’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment will be released just before 10:00 AM ET Friday. This index measures consumer willingness to spend, which relates to consumer spending. If consumers are more confident in their own financial situations, they are more apt to make large purchases in the near future. This report usually has a moderate impact on the financial markets though, because it is not exactly factual data. It is expected to show a reading of 78.5, which would be an increase from April’s final reading, indicating consumers are more confident and more likely to spend than they were last month. If it shows a large decline in consumer confidence, bond prices could rise and mortgage rates would move slightly lower because waning confidence means consumers are less apt to make a large purchase in the near future.

The week’s calendar closes with the release of April’s Leading Economic Indicators (LEI) at 10:00 AM ET Friday. This Conference Board report attempts to predict economic activity over the next three to six months. It is expected to show a 0.3% increase from March’s reading, meaning that economic activity is likely to strengthen slightly over the next few months. A decline would be good news for the bond market and mortgage rates, while an increase could cause mortgage rates to inch higher Friday.

Overall, it is likely going to be an active week for the financial and mortgage markets. I am predicting Monday or Thursday will be the most important day for mortgage rates, but we could see noticeable movement in rates multiple days this week. The lightest day will likely be Tuesday unless it is an overly volatile day for stocks. Accordingly, I strongly recommend maintaining contact with your mortgage professional if still floating an interest rate and closing in the near future.

 

Tagged as: analysis, market trends, mortgage commentary

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

This Week’s Market Commentary

March 25, 2013

This week brings us the release of six pieces of relevant economic data along with two Treasury auctions that have the potential to affect mortgage rates. This is also a holiday-shortened week with the bond market scheduled to close early Thursday and remain closed Friday in observance of the Good Friday holiday. The stock markets will be closed Friday only.

Monday’s only event is a speaking engagement by Fed Chairman Bernanke early afternoon. He will be speaking at the London School of Economics at 1:15 PM ET Monday. The topic of his speech is what was learned from the past financial crisis. I am not expecting this to be a market moving appearance, but anytime he does speak, the markets listen. Therefore, we will be watching for any reaction to his words.

There are three pieces of data set for release Tuesday. The first will come from the Commerce Department at 8:30 AM ET, who will post February’s Durable Goods Orders. This report gives us a measurement of manufacturing sector strength by tracking new orders for big-ticket items, or products that are expected to last three or more years such as electronics, appliances and airplanes. This data is known to be volatile from month to month but is still considered to be of fairly high importance to the markets. Analysts are expecting it to show an increase in new orders of approximately 3.8%. A much larger increase would be considered negative for bonds as it would indicate economic strength and could lead to higher mortgage rates Tuesday morning.

March’s Consumer Confidence Index (CCI) will be posted at 10:00 AM ET Tuesday morning. This index gives us an indication of consumers’ willingness to spend. Bond traders watch this data closely because consumer spending makes up over two-thirds of our economy. If this report shows that confidence in their own financial situations is falling, it would indicate that consumers are less apt to make a large purchase in the near future. If it reveals that confidence looks to be growing, we may see bond traders sell as economic growth may rise, pushing mortgage rates higher Tuesday morning. It is expected to show a decline from February’s 69.0 reading to 66.9 for March. The lower the reading, the better the news it is for bonds and mortgage rates.

The Commerce Department will also give us February’s New Home Sales figures late Tuesday morning. They are expected to announce a small decline in sales of newly constructed homes. This report tracks a much smaller percentage of home sales than last week’s Existing Home Sales report covered, so it should have a much weaker influence on the markets and mortgage pricing. A large increase in sales would be negative for the bond market and mortgage pricing because it would point towards economic strength.

The next relevant data is Thursday’s final revision to the 4th Quarter GDP. This is the second and final revision to January’s preliminary reading of the U.S. Gross Domestic Product, or the sum of all goods and services produced in the U.S. It is expected to show that the economy grew at an annual pace of 0.3% last quarter, up slightly from the previous estimate of 0.1% that was released last month. Analysts are now more concerned with next month’s preliminary reading of the 1st quarter than data from three to six months ago, so I don’t expect this report to affect mortgage rates much.
Friday has two reports that could affect mortgage rates, but since the financial and mortgage markets will be closed we will have to wait for next Monday to see them react to these reports. The first is February’s Personal Income & Outlays report early Friday morning. This data helps us measure consumers’ ability to spend and current spending habits, which is important to the mortgage market because of the influence that consumer spending- related information has on the financial markets. If a consumer’s income is rising, they are more likely to make additional purchases in the near future. This raises inflation concerns, adds fuel for economic growth and has a negative effect on the bond market and mortgage rates. Current forecasts are calling for a 0.8% increase in income and a 0.6% rise in spending. Smaller than expected increases would be ideal for bond traders and mortgage shoppers.

The final report of the week comes from the University of Michigan just before 10:00 AM ET Friday. Their revision to their March Consumer Sentiment Index will give us another indication of consumer confidence, which hints at consumers’ willingness to spend. As with Tuesday’s CCI report, rising confidence is considered bad news for the bond market and mortgage pricing. Friday’s report is expected to show a small increase from the preliminary reading of 71.8. Favorable results for bonds and mortgage rates would be a decline in confidence.

In addition to this week’s economic reports, there are two relatively important Treasury auctions that may also influence bond trading enough to affect mortgage rates. There will be an auction of 5-year Notes Wednesday and 7-year Notes on Thursday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions to mortgage rates. However, strong sales usually make bonds more attractive to investors and bring more funds into the bond market. The buying of bonds that follows often translates into lower mortgage rates. Results of the sales will be posted at 1:00 PM ET auction day, so look for any reaction to come during afternoon hours.
Overall, I believe Tuesday will be the most active day for mortgage rates with three reports scheduled, including the week’s most important (Durable Goods). I would not be surprised to see pressure in bonds Monday due to progress in Cyprus this weekend, so be prepared to see movement in rates Monday also. There doesn’t appear to be too much to be concerned with, however, any day could bring something unexpected that leads to a big move in the markets and mortgage pricing. Therefore, it would be wise to keep an eye on the markets if still floating an interest rate and be ready to contact your mortgage professional.

This Week’s Market Commentary

March 18, 2013

This week brings us the release of four monthly reports for the bond market to digest, but none of them are considered to be highly important. In addition to the economic reports, we also have a Fed-filled day in the middle part of the week. With none of the reports likely to move the markets, we could see a couple fairly calm days in mortgage rates.

There is nothing of importance scheduled for release Monday, so look for the stock markets and overseas news to be the biggest influences on bond trading and mortgage rates. News about a potential bailout for Cyprus and some unprecedented requirements that are being considered could help push stocks lower Monday. As word spread about a potential tax on deposit accounts there, many people rushed ATM’s to get cash out over the weekend. Even though Cyprus’s President addressed the nation to calm fears, the news is expected to drag down international stock markets when they open for trading. That should bode well for the bond market as investors may look towards bonds as safety from any volatility. And what is good for the bond market is generally good news for mortgage shoppers.

Two of the week’s four reports that are scheduled give us insights into the housing sector. They begin early Tuesday morning when February’s Housing Starts will be posted. This report tracks construction starts of new housing. It doesn’t usually cause much movement in mortgage rates and is considered one of the less important reports we see each month. It is expected to show an increase in housing starts, indicating growth in the housing sector. Good news for the bond market and mortgage rates would be a sizable decline in new starts, but unless we see a large variance from forecasts the data likely will not lead to a noticeable move in mortgage pricing.

Wednesday is the day with several Fed events scheduled. They start with the 2:00 PM ET adjournment of the FOMC meeting that began Tuesday. It is widely expected that Mr. Bernanke and company will not change key short-term interest rates at this meeting, but there is rising concern in the market that the Fed may cut back their current bond-buying program (QE3) to help ease future issues. Any word on this topic either way could heavily influence the markets and mortgage rates.
Also worth noting is that the FOMC meeting is ending a little earlier than the traditional 2:15 PM because it is one of the meetings that will be followed by a press conference with Fed Chairman Bernanke. The meeting will adjourn at 2:00 PM while the press conference will begin at 2:30 PM and will probably lead to afternoon volatility in the markets and mortgage rates Wednesday. The Fed will also update their economic and monetary policy projections at 2:00 PM. Any significant revisions to the Fed’s outlook on unemployment, GDP growth or their timetable for keeping key rates at current levels will also cause volatility in the markets and mortgage rates.

February’s Existing Home Sales will be posted late Thursday morning by the National Association of Realtors. It will also give us a measurement of housing sector strength and mortgage credit demand. It is expected to reveal an increase in home resales, meaning the housing sector strengthened last month. Ideally, bond traders would prefer to see a decline in sales, pointing towards a still weakening housing sector. However, a small increase is expected, so it shouldn’t cause much alarm in the bond and mortgage markets. Bad news would be a sizable increase in sales, indicating that the housing sector is gaining momentum. That could be troublesome for the bond market and mortgage rates because housing and unemployment were the two biggest hurdles the economy had to overcome. Recent reports have some traders much more optimistic about the employment sector, so overwhelmingly strong housing news could lead to another rise in mortgage rates.

The Conference Board will post its Leading Economic Indicators (LEI) for February late Thursday morning also. This index attempts to measure economic activity over the next three to six months. It is considered to be moderately important, but likely will not have a significant impact on mortgage rates. Current forecasts are calling for a 0.5% increase, meaning it is predicting that economic activity will likely expand moderately in the coming weeks. A smaller than forecasted rise, or better yet a decline would be considered good news for the bond market and mortgage rates.

Overall, I am considering Wednesday as the key day of the week with the Fed events scheduled, but Monday could be interesting if the Cyprus news does cause stock selling when our markets open in the morning. The least important day will probably be Friday, however, we could see movement in rates any day. It appears that the recent stock rally could be losing steam and if that is true we may see funds shift back into bonds in the near future. Accordingly, I am shifting to a more optimistic stance on rates- at least for the time being.

This Week’s Market Commentary

March 11, 2013

This week brings us the release of five relevant economic reports along with two Treasury auctions for the markets to digest. A couple of the week’s reports are considered highly important, so we could see a fair amount of movement in rates again. There is nothing of relevance to mortgage rates being released or taking place Monday or Tuesday, so all of the week’s events are scheduled over three days.

The first thing on the calendar will come from the Commerce Department early Wednesday morning when they post February’s Retail Sales data. This data is extremely important to the financial markets because it measures consumer spending. Since consumer spending makes up over two-thirds of the U.S. economy, data that is related usually has a big impact on the markets. This month’s report is expected to show an increase in sales of approximately 0.5%. If it reveals a larger than expected increase, the bond market will likely fall and mortgage rates will move higher as it would indicate a stronger level of economic growth than many had thought. If it reveals a much smaller than expected increase, I expect to see bond prices rise and mortgage rates improve Wednesday morning.

There are two Treasury auctions this week that could potentially affect mortgage rates. The first is the 10-year Treasury Note auction Wednesday and the 30-year bond sale will be held Thursday. Results of both sales will be posted at 1:00 PM ET on the sale days. If investor demand was high, we may see bonds rally during afternoon trading as it would hint that investors still have an appetite for longer-term securities. However, weak demand in the sale could lead to selling and an increase in mortgage rates late Wednesday and/or Thursday.

The Labor Department will post February’s Producer Price Index (PPI) early Thursday morning. This important index measures inflationary pressures at the producer level of the economy. There are two portions of the index- the overall reading and the core data. The core data is more important and watched more closely because it excludes more volatile food and energy (including gasoline) prices. If the index shows a large increase, inflation concerns will rise, making long-term investments such as mortgage-related bonds less attractive to investors. This would lead to higher mortgage rates Thursday morning. Current forecasts are calling for a 0.7% increase in the overall reading and a 0.2% increase in the core data.

Friday has the remaining three economic reports scheduled. February’s Consumer Price Index (CPI) will be released early Friday morning, which measures inflationary pressures at the very important consumer level of the economy. Its results can definitely have a huge impact on the bond market, especially long-term securities such as mortgage-related bonds. It is expected to show a 0.5% increase in the overall index and a 0.2% rise in the more important core data. If we see weaker than expected readings, bond prices should rise and mortgage rates would likely fall Friday.

The day’s next report will come mid-morning when February’s Industrial Production report is posted. This report measures manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to show a 0.4% increase from January’s level. A decline would be considered extremely favorable news for bonds and mortgage rates because it would indicate manufacturing sector weakness and a broader economic recovery is more difficult if manufacturing activity is slipping.

The week’s final piece of data is the University of Michigan’s Index of Consumer Sentiment for March just before 10:00 AM ET Friday. This index gives us a measurement of consumer willingness to spend. If confidence is rising, then consumers are more apt to make large purchases. This helps fuel consumer spending levels and economic growth. A drop in confidence will probably hurt the stock markets and boost bond prices, leading to lower mortgage rates, assuming the CPI matches forecasts. Bad news for bonds and mortgage rates would be rising confidence. It is expected to show a reading of 77.8, which would be a very slight increase from February’s final reading 77.6.

Overall, I would label Friday as the most important day of the week, but Wednesday is also likely to be active for mortgage rates. Stocks rallied last week, helping to drive bond yields and mortgage rates higher. The yield on the benchmark 10-year Treasury Note rose above 2.00% again, closing the week at 2.04%. This is troublesome for mortgage rates if it remains above that threshold as it could become a floor of support. Since mortgage rates follow bond yields, it would mean rates are more likely to rise than move much lower in the immediate future. This week will tell us a lot about which direction bond yields and mortgage pricing will be headed in the near future, so please be cautious of still floating an interest rate and closing soon.

This Week’s Market Commentary

December 3, 2012

This week has five pieces of economic data set for release, including two that are considered to be highly important to the markets and mortgage rates. November’s manufacturing index from the Institute for Supply Management (ISM) is the first, coming at 10:00 AM ET Monday. This index measures manufacturer sentiment and can have a considerable impact on the financial markets and mortgage rates. Current forecasts call for a small decline in sentiment from October to November. October’s reading was previously announced as 51.7. A weaker reading than the expected 51.2 would be good news for the bond market and mortgage rates. A reading above 50 means that more surveyed trade executives felt business improved during the month than those who felt it had worsened. The lower the reading the better the news for bonds because waning sentiment indicates a slowing manufacturing sector and makes a broader economic recovery less likely.

The next piece of data that we need to be concerned with comes early Wednesday morning when revised 3rd Quarter Productivity numbers are posted. This index is expected to show an upward revision from the preliminary reading of worker productivity. Higher levels of productivity are thought to allow the economy to expand without inflationary pressures rising. This is good news for the bond market because economic growth itself isn’t necessarily bad for the bond market. It’s the conditions around an expanding economy, such as inflation, that hurt bond prices and mortgage rates. Current forecasts are calling for an annual rate of 2.7%, up from the previous estimate of 1.9%. The higher the reading, the better the news for the bond market.

October’s Factory Orders will be posted late Wednesday morning. This report is similar to the Durable Goods Orders report that was released last week, except this one includes manufacturing orders for both durable and non-durable goods. This data usually isn’t a major influence on bond trading, but it does carry enough importance to impact mortgage rates if it shows a sizable variance from forecasts. Analysts are expecting to see a slight decline in new orders. The larger decline, the better the news for bond prices and mortgage rates because it would signal manufacturing sector weakness. If we do see a sizable drop in new orders, the bond market could thrive, improving mortgage rates Wednesday morning.
There is no other relevant economic news scheduled for release until Friday morning. There are a couple of potentially relevant foreign central bank announcements early Thursday morning that we will be watching. Announcements from the Bank of England and the European Central Bank, which are similar to our FOMC meetings, could influence the global markets including ours. The impact will probably be minimal, but we do need to keep an eye on those announcements early Thursday.

The biggest news of the week comes Friday morning when the Labor Department posts November’s Employment figures. This is arguably the most important monthly report we see. It is comprised of many statistics and readings, but the most watched ones are the unemployment rate, the number of news jobs added or lost during the month and average hourly earnings. Current forecasts call for a 0.1% increase in the unemployment rate to 8.0% while 90,000 new jobs were added to the economy. The income reading is forecasted to show an increase of 0.2%. An ideal scenario for mortgage shoppers would be a higher unemployment rate than 8.0%, a smaller increase in payrolls (or a decline) and no change in the earnings reading. If we are fortunate enough to hit the trifecta with all three, we should see the stock markets fall, bond prices rise and mortgage rates move lower Friday. However, stronger than expected readings would likely fuel a stock rally and bond sell-off that would lead to higher mortgage rates.

Also Friday is the release of December’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment. This index measures consumer willingness to spend and can usually have enough of an impact on the financial markets to change mortgage rates slightly. Consumer sentiment or confidence is tracked because the more comfortable consumers are about their own financial situations, the more likely they are to make a large purchase in the near future. Since consumer spending makes up over two-thirds of the economy, any related data is watched closely. Friday’s release is expected to show a reading of 82.4, which would be a small decline from last month’s final reading of 82.7. A larger decline in confidence would be considered good news for the bond market and mortgage rates.

Overall, look for Friday to be the key day of the week simply due to the fact we are getting the monthly Employment report that day. Monday’s ISM report is also considered highly important, but a level below the Employment report. Still it could be a market mover and set the tone for the markets until Friday’s data is posted. The middle part of the week is the lightest, which is a change from most weeks. I would pick Tuesday to be the least important day of the week, however, any day can bring movement in mortgage rates if the stock markets make a sizable move or something unexpected happens here or in the geopolitical arena. Therefore, I would recommend maintaining contact with your mortgage professional if still floating an interest rate and closing in the near future.

This Week’s Market Commentary

October 8, 2012

This week brings us the release of four economic reports that are of interest to the mortgage market along with two fairly important Treasury auctions. The week also gets heavy in quarterly earnings releases for companies, which could cause significant movement in the stock markets. The earnings results could affect bond trading as investors move funds into stocks if the reports are good. The other possibility is that earnings would generally disappoint, meaning investors may move funds out of stocks and into bonds as a safe-haven. The latter would be good news for the bond market and mortgage rates.

The bond market is closed Monday in observance of the Columbus Day holiday and will reopen Tuesday morning.  The stock markets are open for trading Monday, so their movement is worth watching as a sizable move up or down in the major indexes may influence bond trading and mortgage pricing early Tuesday morning. I suspect many mortgage lenders will be closed tomorrow, as will U.S. banks. If anyone is open for business and does post rates tomorrow, you can expect to see an increase of approximately .125 of a discount point from Friday’s morning pricing due to weakness in bonds late Friday afternoon.

The first report of the week comes at 2:00 PM ET Wednesday afternoon when the Federal Reserve posts its’ Beige Book. This report details economic conditions throughout the U.S. by Fed region and is relied upon heavily by the Federal Reserve when determining monetary policy at their FOMC meetings. If it reveals stronger signs of economic growth from the last release, we could see mortgage rates revise higher Wednesday afternoon.

Also Wednesday is the first of two important Treasury auctions this week. The sale of 10-year Notes will be held Wednesday while 30-year Bonds will be sold Thursday. We often see some weakness in bonds ahead of the sales as the firms participating prepare for them. However, as long as the auctions are met with decent demand from investors, the firms usually buy them back. This tends to help recover any presale losses. But, if the sales are met with a lackluster interest from investors- particularly international buyers, the bond market may move lower after the results are posted and mortgage rates may move higher. Those results will be announced at 1:00 PM each sale day.

August’s Trade Balance report will be released early Thursday morning. It gives us the size of the U.S. trade deficit but is the week’s least important report and likely will have little impact on the bond market and mortgage rates. Analysts are expecting to see a $43.8 billion deficit, but it will take a wide variance from forecasts to directly influence mortgage pricing.

The week closes with two reports being posted Friday morning, one of which is very important to the bond market and mortgage rates. That would be September’s Producer Price Index (PPI) early Friday morning. This is one of the two very important inflation readings we get each month. This index measures inflationary pressures at the producer level of the economy. Analysts are expecting to see a 0.8% increase in the overall index and a 0.2% rise in the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices. A larger than expected increase could raise concerns in the bond market about future inflation and lead to higher mortgage rates Friday. However, weaker than expected readings should result in bond market strength and lower mortgage pricing.

The last report of the week is October’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment late Friday morning. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets. Rising confidence means consumers feel better about their own financial and employment situations, meaning they are more apt to make a large purchase in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, any related date is watched closely. Good news for the bond market would be a sizable decline in consumer confidence, but due to the importance of Friday’s other report, I suspect this data will have little impact on mortgage rates. It is expected to show a reading of 78.5, up slightly from September’s final of 78.3.

Overall, I am expecting to see a fair amount of movement in mortgage rates again this week, but the biggest changes will likely come the latter part of the week. The key economic report is Friday’s PPI but the Fed’s Beige Book also has the potential to influence the markets and mortgage rates if it shows any surprises. Therefore, we can label Wednesday or Friday as the most important day of the week. Also worth noting is the active week for corporate earnings that can cause a great deal of volatility in stocks and mortgage rates any day of the week. Accordingly, please proceed cautiously and maintain contact with your mortgage professional if you have not locked an interest rate yet.

This week’s market commentary

This week brings us the release of six relevant economic reports for the bond market to digest in addition to two potentially influential Treasury auctions. Most of the reports are considered to be of moderate to fairly high importance to the markets, so they do have the potential to affect mortgage rates. We also have to consider stock market swings as they also can have a direct impact on bond trading and mortgage pricing, as we have seen over the past few weeks. Generally speaking, stock market strength makes bonds less appealing to investors and leads to higher mortgage pricing. On the other hand, stock weakness often leads to safe-haven investing where investors move funds away from stocks and into bonds to escape the volatility. That translates into higher bond prices and lower mortgage rates.

The first release of the week is September’s Consumer Confidence Index (CCI) late Tuesday morning. This Conference Board index will be posted at 10:00 AM ET and gives us a measurement of consumer willingness to spend. It is expected to show an increase in confidence from last month’s reading, indicating that consumers were more optimistic about their own financial situations than last month, therefore, more likely to make a large purchase in the near future. This is bad news for the bond market and mortgage rates because consumer spending fuels economic growth. Analysts are calling for a reading of approximately 63.0, up from August’s 60.6 reading. The smaller the reading, the better the news for the bond market and mortgage rates.

August’s New Home Sales will be released late Wednesday morning. The Commerce Department is expected to say that sales of newly constructed homes rose last month, indicating housing sector strength. This report will likely not have a noticeable impact on mortgage rates unless its readings differ greatly from forecasts. This is the week’s least important report in terms of potential impact on mortgage rates, partly because it covers the small portion of all homes sales that last week’s Existing Home Sales report did not.

The Treasury will sell 5-year Notes Wednesday and 7-year Notes Thursday, which will tell us if there is an appetite for medium-term securities. If investor demand in these sales is strong, particularly from international buyers, the broader bond market should move higher, pushing mortgage rates lower. But a lackluster interest from investors could lead to bond selling and higher mortgage pricing. The results of the sales will be announced at 1:00 PM ET each day, so any reaction to the results will come during afternoon trading Wednesday and Thursday. Recent sales in these securities have not shown high levels of investor interest, so I do not have high expectations for this week’s auctions.

August’s Durable Goods Orders is the week’s most important data and will be posted early Thursday morning. This report gives us an indication of manufacturing sector strength by tracking orders for big-ticket items at U.S. factories. Big-ticket products are items that are expected to last three or more years. Analysts are expecting to see a sizable drop of 5.1% in new orders, indicating softening conditions in the manufacturing sector. That could help boost bond prices and cause mortgage rates to drop Thursday because signs of economic weakness make longer-term securities more appealing to investors. However, a sizable increase would indicate a stronger than expected manufacturing sector and would likely help push mortgage rates higher. It is worth noting that this data is known to be quite volatile from month-to-month, so a slight or moderate change may not affect mortgage pricing.

Also Thursday morning is the final revision to the 2nd Quarter Gross Domestic Product (GDP). Since this data is aged now and the preliminary reading of the 3rd Quarter GDP will be released next month, I don’t see this revision having much of an impact on the financial markets or mortgage pricing. The GDP is important because it is the total sum of all goods and services produced within the U.S. and is considered the best measurement of economic activity. It is expected to show no change from the previous estimate of a 1.7% increase in the GDP. It will take a fairly large revision for this data to move mortgage rates Thursday.

Friday has two reports scheduled that may influence mortgage rates. The first is August’s Personal Income and Outlays early Friday morning. It gives us an indication of consumer ability to spend and current spending habits. This is relevant to the markets because consumer spending makes up over two-thirds of the U.S. economy. Rising income generally indicates that consumers have more money to spend, making economic growth more of a possibility. This is negative news for the bond market and mortgage rates because it raises inflation and economic growth concerns, making long-term securities such as mortgage-related bonds less attractive to investors. It is expected to show an increase of 0.2% in income and a 0.5% increase in spending. If we see weaker than expected readings, the bond market should react positively, leading to lower rates Friday.

The second report is the University of Michigan’s revised Index of Consumer Sentiment for September. The preliminary reading that was released earlier this month showed a 79.2 reading. Analysts are expecting to see a small downward revision, meaning consumer confidence was slightly weaker than previously thought. As with Tuesday’s CCI release, a lower than expected reading would be good news for bonds and should help improve mortgage rates.

Overall, it is likely going to be a fairly active week in the markets and mortgage rates again. The most important day will likely be Tuesday or Thursday, but Friday’s data can also influence mortgage rates. The best candidate for the calmest day of the week appears to be Monday with no relevant data being released and an improvement in mortgage rates waiting for borrowers due to strength late Friday. I am still looking for stocks to move lower before they move much higher, which would push investor funds into bonds and drive mortgage rates lower. Therefore, I remain optimistic towards mortgage rates, both short and long-term, but still recommend maintaining fairly regular contact with your mortgage professional if still floating an interest rate.