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.