Weekly Mortgage Commentary-April 14, 2014

This week brings us the release of five economic reports that have the potential to affect mortgage rates. We also have round two of corporate earnings releases that can significantly impact the stock markets and help direct funds into or away from 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.

 

The Commerce Department will start this week’s activities with the release of March’s Retail Sales data early Monday morning. This piece of data gives us a measurement of consumer spending levels, which is very important because consumer spending makes up over two-thirds of the U.S. economy. Forecasts are calling for 1.0% increase in sales from February to March. If we see a larger increase in spending, the bond market will likely fall and mortgage rates will rise as it would indicate consumers are spending more than thought, fueling economic growth. However, a weaker than expected level of sales could push bond prices higher and mortgage rates lower Monday.

March’s Consumer Price Index (CPI) is the second report of the week, coming at 8:30 AM ET Tuesday. This index is one of the more important pieces of data the bond market gets 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% rise in the overall readings and a 0.1% increase in the core reading. The core data is the more important reading, which ideally would show a decline in prices at the consumer level, keeping inflation concerns subdued.

Wednesday has three pieces of economic data worth watching. The first of the day is March’s Housing Starts report that tracks groundbreakings of new home construction. It gives us a measurement of housing sector strength and future demand for mortgage credit. It is not considered to be highly important to the markets but does draw enough attention to influence trading if it reveals surprisingly strong or weak numbers. The report will be posted at 8:30 AM ET and is expected to show an increase in starts from February to March. Good news for mortgage rates would be a decline in starts that points toward housing sector weakness.

The second report Wednesday will be March’s Industrial Production data 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 0.5%. 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 favorable news for the bond market and mortgage shoppers.

Also Wednesday is afternoon release of the Federal Reserve’s Fed Beige Book report. 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 form the last update would be considered negative for bonds and mortgage rates. Slowing economic conditions with little sign of inflationary pressures would be ideal for mortgage rates.

That concludes the week’s monthly or quarterly economic reports that are likely to affect mortgage rates. The bond market will close early Thursday and will be closed Friday in observance of the Good Friday holiday. The stock markets will be closed Friday but have a full day of trading Thursday. All the markets will reopen for regular trading Monday morning. It is fairly common to see a little pressure in bonds just before a holiday as investors look to protect themselves over the long weekend.

Overall, the most important reports are Monday’s Retail Sales and Tuesday’s CPI index, but Wednesday has three releases so it may be an active day also. I believe we will see the most movement in mortgage rates either Monday or Wednesday. However, we need to keep a close eye on the stock markets for mortgage rate direction also. If stocks extend last week’s sell-off, we could see further gains in bonds and improvements to mortgage rates. The benchmark 10-year Treasury yield is currently almost 2.62%, which is well below the 2.68% we considered a resistance level. I don’t see it remaining where it is now for very long. I believe we are more likely to see it move back closer to that threshold than below 2.60% in the immediate future. Therefore, I am holding my conservative stance towards rates and recommend locking a rate if closing in the near future.

Weekly Morgage Commentary-April 7, 2014

This week brings us the release of only two monthly economic reports that are relevant to mortgage rates, in addition to a couple of Treasury auctions and the minutes from the last FOMC meeting that have the potential to be influential on the bond market and mortgage pricing. Corporate earnings season also kicks off this week, which could be instrumental in driving stock prices significantly higher or lower. Since stock movement often affects bond trading, we will also be watching the earnings releases from some of the bigger names and bellwethers to help gauge bond direction and mortgage rates movement. There is no relevant economic news scheduled for release Monday or Tuesday. The first events of the week will come Wednesday afternoon. One is the release of the minutes from the last FOMC meeting. Market participants will be looking at them closely as they give us insight to the Fed’s current thought process and individual Fed member opinions. Any surprises in the 2:00 PM ET release, particularly about inflation, economic conditions or their current bond buying program, could cause afternoon volatility in the markets Wednesday and possible changes in mortgage pricing. The two Treasury auctions are scheduled for Wednesday and Thursday. There is a 10-year Treasury Note sale Wednesday and a 30-year Bond sale Thursday. We could see some weakness in bonds ahead of the sales as participating firms sell current holdings to prepare for them. This weakness is usually only temporary if the sales are met with a decent demand. The results of the auctions will be posted at 1:00 PM ET each day. If the demand from investors was strong, the bond market could rally during afternoon trading, leading to lower mortgage rates. If the sales were met with a poor demand, the afternoon weakness may cause upward revisions to mortgage pricing Wednesday and/or Thursday afternoon. Friday has both of the week’s important economic data scheduled. The Labor Department will start the day by posting March’s Producer Price Index (PPI) at 8:30 AM ET. It will give us an important measurement of inflationary pressures at the producer level of the economy. There are two portions of the report that analysts watch- the overall reading and the core data reading. The core data is more important to market participants because it excludes more volatile food and energy prices. If it shows rapidly rising prices, inflation fears may hurt bond prices since it erodes the value of a bond’s future fixed interest payments, leading to higher mortgage rates. A good size decline in prices would be good news for the bond market and mortgage rates. Current forecasts are calling for a 0.1% increase in the overall reading and a 0.1% rise in the core data. The only other monthly release of the week worth watching is the University of Michigan’s Index of Consumer Sentiment at 9:55 AM ET Friday. Their consumer sentiment index will give us an indication of consumer confidence, which hints at consumers’ willingness to spend. If confidence is rising, consumers are more apt to make large purchases. But, if they are growing more concerned of their personal financial or employment situations, they probably will delay making that purchase. This influences future consumer spending data and can have a moderate impact on the financial markets. Good news would be a sizable decline from March’s 80.0 reading. Current forecasts are calling for a reading of approximately 81.0. Overall, look for the most movement in rates the latter part of the week. I don’t believe Friday’s rally in bonds will necessarily carry into Monday’s trading, so any gains to open the week will likely be a result of stock losses that help shift funds into bonds. Wednesday could be the most active day of the week if the FOMC minutes reveal any surprises. If not, the best bet would be Friday. Tuesday appears to be the lightest and will probably be the calmest day for mortgage rates. Look for the stock markets to also influence bond trading and mortgage rates a good part of the week as traders react to the corporate earnings news. I am expecting it to be an active week for the mortgage market, so please maintain contact with your mortgage professional if still floating an interest rate.

Weekly Mortgage Commentary-March 10, 2014

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

 

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

February’s Retail Sales data will come from the Commerce Department early Thursday morning. This data is extremely important to the financial markets because it measures consumer spending strength. Since consumer spending makes up over two-thirds of the U.S. economy, data that is related usually has a big impact on the markets. This month’s report is expected to show an increase in sales of approximately 0.2%. If it reveals a larger than expected increase, the bond market will likely fall and mortgage rates will move higher as it would indicate a stronger level of economic growth than many had thought. If it reveals a much weaker level of spending, I expect to see bond prices rise and mortgage rates improve Thursday morning.

The Labor Department will post February’s Producer Price Index (PPI) early Friday morning. This important index measures inflationary pressures at the producer level of the economy. There are two portions of the index- the overall reading and the core data. The core data is more important and watched more closely because it excludes more volatile food and energy (including gasoline) prices. If the index shows a large increase, inflation concerns will rise, making long-term investments such as mortgage-related bonds less attractive to investors. This would lead to higher mortgage rates Friday morning. Current forecasts are calling for a 0.2% increase in the overall reading and a 0.1% increase in the core data.

Also Friday is the University of Michigan’s Index of Consumer Sentiment for March just before 10:00 AM ET. This index gives us a measurement of consumer willingness to spend. If consumers are more confident in their own financial and employment situations, then they are more apt to make large purchases in the near future. This helps fuel consumer spending levels and economic growth. A drop in confidence will probably hurt the stock markets and boost bond prices, leading to lower mortgage rates if the PPI matches forecasts. Bad news for bonds and mortgage rates would be rising confidence. It is expected to show a reading of 82.0, which would be a small increase from February’s final reading 81.6.

Overall, I would label Thursday as the most important day of the week, but Friday is also likely to be active for mortgage rates. Stocks rallied last week, helping to drive bond yields and mortgage rates higher. The yield on the benchmark 10-year Treasury Note closed the week at 2.79%. This is troublesome for mortgage borrowers because rates tend to follow bond yields. This coming week will tell us a lot about which direction bond yields and mortgage pricing will be headed in the near future. It will be interesting to see if it moves closer to 2.95% or back toward 2.70%. I suspect it is going to move higher before moving much lower, so please be careful if still floating an interest rate and closing soon.

Weekly Mortgage Commentary-March 3, 2014

This week has seven relevant reports for the markets to digest with two being considered highly important. The rest of the reports are moderate to fairly important to the markets, meaning they have the potential to affect mortgage rates but usually don’t cause a noticeable change. The most important data comes early and late in the week, but sizable moves in stocks can impact bond trading and mortgage rates any day.

January’s Personal Income and Outlays data will start the week’s activities at 8:30 AM ET Monday morning. This data gives us an indication of consumer ability to spend and current spending habits. Current forecasts call for an increase in income of 0.3% while spending is expected to rise 0.1%. Lower levels of income means consumers have less money to spend. And weaker levels of consumer spending helps limit overall economic growth, making long-term securities such as mortgage-related bonds more attractive to investors. Therefore, the weaker the readings, the better the news it would be for mortgage rates.

The Institute for Supply Management (ISM) will release their manufacturing index for February late Monday morning. This index measures manufacturer sentiment and can have a pretty large impact on the financial and mortgage markets if it varies from forecasts. It is expected to show a small increase from January’s 51.3 to 51.6 this month. This is important because a reading above 50.0 means more surveyed manufacturers felt business improved during the month than those who felt it had worsened, meaning growth is likely in the manufacturing sector. If we see a weaker than expected reading, the bond market could rally. This is especially true if we see a reading below 50.0 that would point towards manufacturing sector contraction. But, a much higher than forecasted reading could lead to major selling in bonds, causing mortgage rates to rise Monday morning. One of the reasons this data is considered so important is the fact that it is usually the first monthly report posted that covers the preceding month. It is traditionally posted the first business day of the month, allowing for a current snapshot of conditions in the manufacturing sector.

This week has a couple of private sector employment-related reports due to be posted. The biggest one comes Wednesday morning from payroll processor ADP who will announce their change in private-sector payrolls processed last month. Since it is not a government agency report, it isn’t considered to be highly important however, as with any employment-related data it does draw some attention. This is especially true for this report because it is posted just a couple days before monthly employment figures are released by the Labor Department. I personally believe it is given more attention than it really deserves, particularly because many use it to predict the monthly government figures but often fail miserably. Still, if it shows a noticeable variance from expectations, it will likely cause movement in the markets and mortgage rates.

The Fed Beige Book is the next report scheduled for release and it will be posted Wednesday afternoon. This report details economic activity throughout the country by Federal Reserve region. The Fed relies heavily on this data during their FOMC meetings, so look for a potential reaction during afternoon trading Wednesday. It probably will not cause a major sell off in the stock or bond markets, but it is still worth watching it.

Thursday has two reports scheduled for release, but neither is considered to be highly important. The first is the revised Productivity index for the 4th Quarter of last year. The preliminary reading posted last month showed an increase of 3.2% in worker output. Analysts are expecting to see a downward revision of 0.7% to last month’s initial reading. Employee productivity is watched fairly closely because a higher level of output per hour is believed to mean that the economy can expand without inflation concerns. However, since this data is quite aged now, it likely will have little impact on Thursday’s mortgage rates unless it shows a significant change.

The second report of the day is January’s Factory Orders at 10:00 AM ET, which will give us a measurement of manufacturing sector strength. This data is similar to last week’s Durable Goods, except this report covers orders for both durable and non-durable goods. Current forecasts are calling for a drop in new orders of approximately 0.5%. A larger than expected drop would be good news for the bond market and could lead to an improvement in mortgage rates since it would point towards economic weakness.

The biggest news of the week comes early Friday morning when one of the single most important monthly reports we see will be posted. The Labor Department will release February’s Employment report at 8:30 AM ET Friday. Some of the important portions of the report will give us the unemployment rate, number of new jobs added or lost and the average hourly earnings reading. The best combination for the bond market and mortgage rates would be an increase in the unemployment rate, a much smaller increase in payrolls than expected and little or no increase in earnings. Current forecasts are calling for no change in the unemployment rate of 6.6% and approximately 155,000 new jobs added to the economy. Stronger than expected readings will likely fuel a stock market rally and selling in bonds that would cause a sizable upward revision to mortgage rates. On the other hand, disappointing numbers would raise concerns about the economy’s ability to continue to grow that would have an opposite impact on the markets and mortgage pricing.

January’s Goods and Services Trade Balance report will also be released at 8:30 AM ET Friday morning, but it will likely draw little interest from market participants. It will give us the size of the U.S. trade deficit, which does not directly impact mortgage rates and is the week’s least important piece of news. Current forecasts are calling for a $37.3 billion trade deficit during January, but with it being posted at the same time as the almighty employment report, there is little possibility of this report affecting Friday’s mortgage rates.

Overall, look for a fairly active week in the markets and mortgage rates, especially the early and latter days. Friday is the most important day of the week due to the significance of that day’s data but we could also see a noticeable move in rates Monday. The lightest day will probably be Tuesday unless something unexpected happens. With data or relevant reports being posted four of five days and some of that data considered key, it would be prudent to maintain contact with your mortgage professional if still floating an interest rate and closing soon.

Weekly Mortgage Commentary-February 24, 2014

This week brings us the release of five economic reports to be concerned with in addition to testimony from Fed Chairman Yellen and two potentially relevant Treasury auctions. None of the reports can be considered key or highly important to the markets, but a couple of them certainly carry enough significance to affect mortgage pricing. There is something scheduled four of the five days that can move rates, with Monday being the sole empty day of the week.

 

The first piece of data is February’s Consumer Confidence Index (CCI) at 10:00 AM ET Tuesday morning. This Conference Board index measures consumer confidence in their personal financial situations, giving us a measurement of consumer willingness to spend. If consumers are feeling good about their own financial and employment situations, they are more apt to make large purchases in the near future. Since consumer spending makes up over two-thirds of the economy, related data is considered important in terms of gauging economic activity. It is expected to show little change in confidence from the 80.7 reading in January to 80.8 this month. A lower reading would be considered good news for bonds and mortgage rates since it would indicate consumers are less likely to make a large purchase in the near future.

January’s New Home Sales report will be posted at 10:00 AM ET Wednesday morning. This is the least important report of the week, and is the sister report to last week’s Existing Home Sales data. They measure housing sector strength and mortgage credit demand, but usually do not have a significant impact on bond trading or mortgage rates unless they show significant surprises. Wednesday’s report is expected to show a decline in sales of newly constructed homes, hinting at weakness in the new home portion of the housing sector. Ideally, the bond market would prefer to see noticeable housing sector weakness because it makes broader economic growth more difficult and bonds tend to thrive during weaker economic conditions.

January’s Durable Goods Orders data will be released at 8:30 AM ET Thursday morning. This report gives us an important measurement of manufacturing sector strength by tracking orders at U.S. factories for items expected to last three or more years. Products such as electronics, refrigerators, airplanes and autos are examples of these big-ticket items. A larger decline than the 1.1% that is expected would be good news for the bond market and mortgage rates as it would point towards manufacturing sector weakness. This data is known to be quite volatile from month-to-month, so large swings are fairly normal. A small variance from forecasts would not cause much concern or joy in the markets.

Fed Chairman Yellen will deliver day two of the Fed’s semi-annual testimony on the status of the economy and monetary policy late Thursday morning. She will be speaking to the Senate Banking Committee, which was postponed from its originally scheduled date two weeks ago due to weather. Day one in front of the House Financial Services Committee was completed. Since the prepared statement by Chairman Yellen is expected to mirror her previous appearance, any noticeable reaction in the financial or mortgage markets will likely come as a result of a response during the Q&A portion of the proceeding. She will appear at 10:00 AM ET Thursday, so any reaction will probably come during late morning trading.

Friday has the remaining two relevant pieces of economic data. The first of two revisions to the 4th Quarter GDP reading is scheduled for release at 8:30 AM ET Friday morning. The GDP is considered the benchmark reading of economic growth or contraction because it is the total sum of all goods and services produced in the U.S. Analysts’ forecasts currently call for an annual rate of growth of 2.6%, down from the initial estimate of 3.2% that was posted last month. It will be interesting to see where this figure falls and what its impact on the markets will be. Generally speaking, higher levels of activity are bad news for the bond market, while a downward revision would be good news for bonds and could lead to improvements in mortgage pricing Friday.

The University of Michigan’s revision to their Index of Consumer Sentiment for February will close out the week’s calendar just before 10:00 AM ET Friday. Current forecasts show this index rising slightly from its preliminary estimate of 81.2. This index is fairly important because it helps us measure consumer confidence that translates into consumer willingness to spend, but is not considered to be a major market mover. This means it will probably not have a significant impact on mortgage rates, especially with other important data being released Friday morning.

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, sales with higher levels of investor demand usually make bonds more attractive to investors and brings additional funds into the bond market. The buying of bonds that follows usually translates into lower mortgage rates.

Overall, Thursday is the best candidate for most active day of the week in terms of mortgage rate movement with the Durable Goods report, Chairman Yellen’s congressional appearance and a Treasury auction taking place. Monday is the only day with nothing of importance set, so we can label it the least important day. I suspect it will be a fairly active week for mortgage rates, but not a significantly volatile week unless something unexpected happens. Still, it would be prudent to maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.

Weekly Mortgage Commentary-February 10, 2014

This week brings us the release of three pieces of monthly economic data that is relevant to mortgage rates in addition to two Treasury auctions and semi-annual Fed testimony. All of the economic data is set for release the latter part of the week while the other events will take place during the middle days. One of the economic reports is considered highly important to the markets, but the others are not likely to be market movers. Even with a lack of factual data the first half of the week though, we have other events that are likely to cause a fair amount of volatility in the markets and mortgage rates.

 

There is nothing of concern due Monday, leaving bond trading to be driven by the stock markets. If the major stock indexes move noticeably higher, we will probably see funds move away from bonds and into stocks. This would lead to higher mortgage rates as bond prices and yields move in opposite directions. Mortgage rates tend to follow bond yields, so we prefer to see bond prices go up, pushing yields and rates lower. On the other hand, stock selling could drive yields lower Monday, leading to a downward move in rates.

Newly appointed Fed Chairman Yellen will deliver the Fed’s semi-annual testimony on the status of the economy late Tuesday and Thursday mornings. She will be speaking to the House Financial Services Committee Tuesday morning and the Senate Banking Committee Thursday. Market participants will watch her words very closely. The Fed is required to deliver this testimony twice a year, which is considered to be of extreme importance to the financial markets. We almost always see the markets move as a result of what is said during this testimony. Look for her to address our employment situation, inflation, global financial issues and possibly the Fed’s tapering of QE3 and their impact on the overall economy. Her testimony begins at 10:00 AM ET with a prepared statement which is then followed by Q & A with committee members. Her prepared words are expected to be released at 8:30 AM Tuesday, so we could see a reaction early Tuesday morning. I am expecting to see the markets fluctuate Tuesday morning, possibly affecting mortgage rates also. The first day of testimony usually causes the most volatility because the prepared statement made by the Chairman on the second day often differs little from that of the first day.

The two important Treasury auctions come Wednesday and Thursday when 10-year Notes and 30-year Bonds are sold. The 10-year sale is the more important of the two as it will give us a better indication for demand of mortgage-related securities. If the sales are met with a strong demand from investors, we should see the bond market move higher during afternoon trading the days of the auctions. But a lackluster interest from buyers, particularly international investors, would indicate a waning appetite for longer-term U.S. securities and lead to broader bond selling. The selling in bonds would likely result in upward afternoon revisions to mortgage rates.

This week’s first release is one of the more important ones we get each month. The Commerce Department will post January’s Retail Sales data early Thursday morning. This report is very important to the financial markets because it measures consumer spending. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is watched quite closely. If Thursday’s report reveals weaker than expected retail-level sales, the bond market should thrive and mortgage rates will fall since it would be a sign that the economy is not as strong as many had thought. However, a stronger reading could lead to higher mortgage rates Thursday. Analysts are currently expecting to see no change from December’s level of spending.

Friday has the remaining two reports scheduled. January’s Industrial Production data will be released mid-morning Friday. It gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities and can have a moderate impact on the financial markets. Analysts are expecting to see a 0.3% increase in production from December to January. A decline in output would be good news and should push bond prices higher, lowering mortgage rates Friday.
February’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment will be released late Friday morning. This index measures consumer willingness to spend and also usually has a moderate impact on the financial markets. If it shows an increase in consumer confidence, the stock markets may move higher and bond prices could fall. It is currently expected to come in at 80.2, down from January’s final reading of 81.2. That would indicate consumers were a little less optimistic about their own financial situations than last month and are less likely to make large a purchase in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, this would be considered slightly favorable news for bonds and mortgage pricing.

Overall, Tuesday or Thursday are likely to be the most important days for mortgage rates this week. The calmest will probably be Monday with it being the only day without something of relevance scheduled. The afternoon auctions and late morning starting times for the Fed testimony means there is a good likelihood of seeing intraday revisions to mortgage rates multiple days as the markets react to those events. Therefore, it would be a good idea to maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.