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

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

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

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.