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

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.

This Week’s Market Commentary

This Week’s Market Commentary

August 6, 2012

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 are only two monthly or quarterly reports and neither is 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.

There are two public speaking engagements by Fed Chairman Bernanke, neither of which is likely to cause volatility in the markets or mortgage pricing. The first is Monday morning when he will appear via prerecorded video at a conference in Boston. He is also hosting a town hall meeting on education Tuesday afternoon in Washington D.C. and will answer questions from people in attendance and via video feed. Both of these are considered to be of very low importance and have little chance to causing any havoc in the markets.

The first economic data of the week is Employee Productivity and Costs data for the second quarter that will be released early Wednesday 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 pricing, but since it is the only data of the day in a week with little else scheduled, it may influence rates slightly during morning trading. Analysts are currently expecting to see an increase in productivity of 1.5% and a 0.4% rise in labor costs. A stronger than expected productivity reading and a smaller than expected increase in costs could help improve bonds, leading to lower mortgage rates Wednesday.

June’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 $47.5 billion deficit, but it will take a wide variance to directly influence mortgage pricing.

Also worth noting are 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 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.

Overall, it is difficult to label one particular day as the most important with so little to choose from. Monday may be a little interesting considering the size of Friday’s stock rally that pushed the Dow higher by 217 points, which drove bond prices lower. We would not be surprised to see the negative tone extend into tomorrow’s bond trading and mortgage rates, especially if stocks open higher. We 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 much calmer than recent weeks.

This Week’s Market Commentary

July 2, 2012

This week brings us the release of only three pieces of relevant economic data that may influence mortgage rates, but two of them are considered to be highly important. In addition, the Independence Day holiday falls in the middle of the week this year, so we have an early and full-day closure to work around.

Unlike many Mondays, tomorrow does bring us some very important economic data. This would be the Institute of Supply Management’s (ISM) manufacturing index for June late tomorrow morning. This index measures manufacturer sentiment by surveying trade executives on current business conditions. A reading above 50 means that more surveyed executives felt business improved during the month than those who felt it had worsened. Analysts are expecting a reading of 52.2. That would indicate that more manufacturers felt business worsened from the previous month, when we saw a 53.5 reading. Good news for bonds and mortgage rates would be a weaker than expected reading, particularly something below the recessionary threshold of 50.0.

The Commerce Department will post May’s Factory Orders data late Tuesday morning, which is similar to the Durable Goods Orders report that was released last week. The biggest difference is that this week’s report covers both durable and non-durable goods. It usually doesn’t have as much of an impact on the bond market as the durable goods data does, but can lead to changes in mortgage pricing if it varies greatly from forecasts because it measures manufacturing sector strength. Current expectations are showing a 0.4% increase in new orders from April’s levels. A decline in orders would be considered good news for the bond market and could help lower mortgage rates slightly Tuesday.

The U.S. financial and mortgage markets will be closed Wednesday in observance of the Independence Day holiday. They will also close early Tuesday afternoon ahead of the holiday and will reopen Thursday morning for regular trading hours. Considering recent events from Europe, who will treat Wednesday as any other day of business, we could see bond traders sell holdings before the 2:00 PM ET close Tuesday to protect themselves over the holiday. That raises the possibility of seeing an upward revision to mortgage rates Tuesday afternoon.

The last data of the week is arguably the single most important report we see each month. The Labor Department will post June’s unemployment rate, number of new payrolls added or lost and average hourly earnings early Friday morning. 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, a large decline in payrolls and no change in earnings. Weaker than expected readings would likely help boost bond prices and lower mortgage rates Friday. However, stronger than expected readings could be extremely detrimental to mortgage pricing. Analysts are expecting to see the unemployment rate remain at 8.2%, with 100,000 jobs added and a 0.2% rise in earnings.

Overall, I am expecting to see a fairly active week for the financial markets and mortgage rates. We have a small increase in rates waiting for us tomorrow morning due to weakness in bonds late Friday. The most important day of the week is Friday, but tomorrow could also be a key day in determining whether rates move higher or lower on the week. Furthermore, the stock markets will also heavily affect bond trading if they rally or go into a sell-off any day of the week. Therefore, I recommend maintaining contact with your mortgage professional if still floating an interest rate.

This Week’s Market Commentary

June 25, 2012

This week brings us the release of six pieces of economic data in addition to a couple of Treasury auctions that have the potential to influence mortgage rates. None of the reports are considered to be highly important or labeled as market-movers, but they do carry enough significance to affect mortgage pricing if they show surprises in their results.

May’s New Home Sales report kicks off this week’s data late tomorrow morning. It is similar to last week’s Existing Home Sales report, but tells us how well sales of newly constructed homes were last month. It is expected to show an increase in sales, but will likely not have much of an impact on mortgage rates because this data tracks the small portion of home sales that last week’s report did not. I believe it will take a large rise in sales or a sizable decline for this data to influence mortgage rates.

June’s Consumer Confidence Index (CCI) is the second report of the week. It will be posted late Tuesday morning and is important to the financial markets because it measures consumer willingness to spend. If consumers are more confident about their own financial situations, they are more apt to make large purchases in the near future. If it shows a sizable increase in confidence from last month, we can expect to see the bond market falter and mortgage rates rise slightly. Current forecasts are calling for a reading of 64.0, down from last month’s 64.9 reading. The lower the reading, the better the news for bonds and mortgage rates.

May’s Durable Goods Orders will be posted early Wednesday morning, giving us an indication of manufacturing sector strength. It tracks orders at U.S. factories for big-ticket items, or products that are expected to last three or more years. This data is known to be quite volatile from month to month and is expected to show an increase of 0.5% in new orders from April to May. A large decline would be the ideal scenario for the bond market and would likely lead to a decline in mortgage pricing because it would indicate manufacturing sector weakness.

Thursday’s only monthly or quarterly economic data is the final reading to the 1st Quarter Gross Domestic Product (GDP). The GDP is the sum of all products and services produced in the U.S. and is considered to be the best measurement of economic growth or contraction. However, this particular data is quite aged now (covers January through March) and will likely have little impact on the bond market or mortgage pricing unless it varies greatly from previous readings. Market participants are looking more towards next month’s release of this quarter’s initial GDP reading. Last month’s first revision showed a 1.9% rise in the GDP, which is what analysts are expecting to see again.
Friday has two reports scheduled, the first being May’s Personal Income and Outlays data at 8:30 AM ET. This report gives us an indication of consumer ability to spend and current spending activity. They are important because consumer spending makes up over two-thirds of the U.S. economy. If consumer income is rising, they have more money to spend each month. Analysts are expecting to see an increase of 0.1% in income and a 0.1% rise in the spending portion of the report. Declines in both of these readings would be good news for the bond market and mortgage rates.
The University of Michigan will close out this week’s data when they update their Index of Consumer Sentiment for May late Friday morning. This index gives us a measurement of consumer willingness to spend. As with Tuesday’s CCI, if consumers are more comfortable with their own financial situations, they are more apt to make large purchases in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, any related data has the potential to affect bond trading and mortgage rates. A downward revision would be considered good news for bonds and rates, but forecasts are calling for no change from this month’s preliminary reading of 74.1.
Also worth noting is the fact that the Fed will be selling more debt this week. These sales may influence broader bond trading enough to affect mortgage rates if they show strong or weak investor demand. There are sales every day except Friday but the two most likely to affect rates are Wednesday’s 5-year Note sale and Thursday’s 7-year Note auction. If they are met with a strong demand, we could see bond prices rise during afternoon trading. This could lead to afternoon improvements to mortgage rates also. But, if the sales draw a lackluster interest from investors, mortgage rates may move higher during afternoon trading those days.
Overall, Tuesday, Wednesday and Friday’s data should bring some volatility in trading and mortgage rates. It is difficult to label one particular day as the most important as none of them stand out as critical. In fact, any day that has a sizable move in stocks could help determine which day was the most active for mortgage rates.