This Week’s Market Commentary
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 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.