This Week’s Market Commentary_May 21, 2012

This week brings us the release of four important economic reports in addition to two Treasury auctions that may influence rates. Only one of the reports is considered to be of fairly high importance to the bond market and mortgage pricing.

The remaining reports are considered to be of moderate or low importance and will likely not heavily influence mortgage rates. There is nothing of importance scheduled for release tomorrow, so expect the stock markets to influence bond trading and mortgage pricing.

The National Association of Realtors will give us their Existing Home Sales report late Tuesday morning. This data tracks resales of homes in the U.S. during April, giving us a measurement of housing sector strength. This type of data is relevant because a weakening housing sector makes a broader economic recovery less likely. Current forecasts are calling for an increase in home sales between March and April. Ideally, the bond market would prefer to see a decline, indicating further housing sector weakness. A large increase in sales could lead to bond weakness and a small increase in mortgage rates Tuesday morning.

April’s New Home Sales report is the sister report of the Existing Home Sales and will be released late Wednesday morning. It gives us a similar measurement of housing sector strength and future mortgage credit demand, but tracks a much smaller portion of housing sales than Tuesday’s report does. Actually, it is the least important release of the week and probably will not have much of an impact on mortgage pricing. It is expected to show gains in sales from March’s level, meaning the new home portion of the housing sector also strengthened last month.

Thursday has the week’s most important report with April’s Durable Goods Orders being posted. This data gives us an indication of manufacturing sector strength by tracking orders at U.S. factories for big-ticket products. These are items made with an expected life span of three or more years. It is currently expected to show an increase in new orders of approximately 0.3%, indicating the manufacturing sector remained fairly flat last month. That would be relatively good news for the bond market and mortgage rates, but this data is known to be quite volatile. Therefore, a small variance from forecasts would likely have little impact on Thursday’s mortgage rates.

The last relevant data of the week will come from the University of Michigan, who will update their Index of Consumer Sentiment for May late Friday morning. This type of data is watched closely because when consumers are feeling more confident about their own financial situations, they are more likely to make a large purchase in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, rising confidence and the higher levels of spending that usually follow, are considered negative news for bonds and mortgage rates. Friday’s report is expected to show a small decline from this month’s preliminary reading of 77.8. A reading above 77.5 would be considered negative for bonds and mortgage pricing.

Overall, I think we have a moderately busy week ahead of us. The big report of the week is the Durable Goods Orders, making Thursday the best candidate for most active day for mortgage rates. Tuesday’s housing report may also cause movement in rates if it shows a sizable variance from forecasts. There are also a couple of Treasury auctions that are worth noting. The 5-year Note sale is Wednesday and the 7-year Note auction will be held Thursday. Both may also influence bond trading and possibly mortgage rates if they are met with an exceptional demand or if there is lackluster interest from investors.

Also worth noting is the fact that the bond market will close early Friday afternoon ahead of next Monday’s Memorial Day holiday. With all this, there is a pretty good possibility of seeing mortgage rates change several times this week- especially if there is more volatility in the stock markets. Accordingly, please proceed extremely cautiously if still floating an interest rate.

This Week's Market Commentary_May 14, 2012

This week brings us the release of five pieces of relevant economic news in addition to the minutes from the most recent FOMC meeting. Two of the economic reports are considered to be highly important to the markets and mortgage rates, while the others carry enough significance to influence mortgage rates if they show a wide variance from forecasts.

The first important piece of data this week is April’s Retail Sales, which will be released at 8:30 AM ET Tuesday. It is an extremely important report for the financial markets since it measures consumer spending. Consumer spending makes up over two-thirds of the U.S. economy, so this data can have a pretty significant impact on the markets. Current forecasts are calling for a 0.2% increase in sales from March to April.

A weaker than expected level of sales should push bond prices higher and mortgage rates lower Tuesday morning as it would signal that economic activity may not be as strong as thought. However, a larger increase could fuel fears of economic growth that would lead to stock buying and bond selling that would push mortgage rates higher.

April’s Consumer Price Index (CPI) will also be posted at 8:30 AM ET Tuesday. It is similar to last week’s PPI report, but measures inflationary pressures at the more important consumer level of the economy. These results will be watched closely and could lead to significant volatility in the bond market and mortgage pricing if they show any surprises. Current forecasts are calling for no change in the overall index and a 0.2% rise in the core data reading. The core data is the more important of the two readings because it excludes more volatile food and energy prices, giving analysts a more stable and reliable measurement of inflation.

Wednesday has three reports scheduled, starting with April’s Housing Starts at 8:30 AM ET. This data measures housing sector strength and mortgage credit demand by tracking newly issued permits and actual starts of new home construction. It is expected to show an increase in new starts from March’s readings. Since this report is not considered to be of high importance to the bond market, it likely will have little impact on mortgage rates unless it varies greatly from forecasts.

The second report of the day is April’s Industrial Production at 9:15 AM ET. It measures manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to show a 0.5% increase in production, indicating that manufacturing activity is growing. A smaller than expected increase in output would be good news for the bond market and mortgage rates because it would indicate that the manufacturing sector is not as strong as thought. This report is just a bit more important to the markets as the earlier housing report, so they both will likely need to show unexpected strength or weakness for them to cause movement in mortgage rates.

Wednesday’s third release is the minutes of the last FOMC meeting. Market participants will be looking for how Fed members voted during the last meeting and any comments about inflation concerns in the economy and economic growth. The goal is to form opinions about the Fed being able to wait until late 2014 to make a move to either boost economic activity or slow growth to ease inflation concerns. Since the minutes will be released at 2:00 PM ET, if there is a market reaction to them it will be evident during afternoon trading Wednesday.

The last data of the week comes late Thursday morning with the release of April’s Leading Economic Indicators (LEI). This Conference Board report attempts to measure economic activity over the next three to six months. It is expected to show a 0.2% increase from March’s reading, meaning that economic activity is likely to strengthen slightly over the next few months. A decline would be good news for the bond market and mortgage rates, while an increase could cause mortgage rates to inch higher Thursday.

Overall, it looks like we may see the most activity Tuesday with the two most important reports of the week scheduled. Wednesday could also be active while Friday is the best candidate for calmest day unless something unexpected happens. However, sizable gains or losses in the major stock indexes could influence bonds and mortgage rates more than a good part of this week’s economic data can. Therefore, please maintain contact with your mortgage professional if still floating an interest rate.

This Weeks Market Commentary_May 7, 2012

There are only three pieces of relevant economic data scheduled for release this week that may affect mortgage rates, in addition to two important Treasury auctions. The two most important reports will be posted Friday, meaning the markets will have to rely on factors other than economic news for direction most of the week.
There is no relevant economic data due until Thursday, so expect the stock markets to be a big influence on bond trading and mortgage rates until then.

The Treasury will hold a 10-year Note sale Wednesday and a 30-year Bond sale Thursday. Results of the auctions will be posted at 1:00 PM ET each day. If they are met with a strong demand from investors, we could see bond prices rise enough during afternoon trading to cause downward revisions to mortgage rates. However, lackluster bidding in the sale, meaning longer-term securities are losing their appeal, could lead to higher mortgage pricing those afternoons.

March’s Goods and Services Trade Balance report will be released early Thursday morning. This report gives us the size of the U.S. trade deficit but likely will not have much of an impact on the bond market or mortgage pricing. It is expected to show a $49.9 billion trade deficit, but it is the least important of this week’s data and likely will have little influence on Thursday’s mortgage rates.

Friday has the remaining two reports. April’s Producer Price Index (PPI) is the first at 8:30 AM ET. It helps us measure inflationary pressures at the producer level of the economy. If this report reveals weaker than expected readings, indicating inflation is not a concern at the producer level, we should see the bond market rally. The overall index is expected to show no change, while the core data that excludes more volatile food and energy prices has been forecasted to rise 0.2%. A decline in the core data would be ideal for mortgage shoppers because inflation is the number one nemesis for long-term securities such as mortgage-related bonds.

The last report of the week is May’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment. This index measures consumer willingness to spend, which relates to consumer spending. If consumers are more confident of their own financial situations, they are more apt to make large purchases in the near future. This report usually has a moderate impact on the financial markets though, because it is not exactly factual data. It is expected to show a reading of 76.2, which would be a small decline from last month’s final reading. If it shows a large decline in consumer confidence, bond prices could rise and mortgage rates would move slightly lower because waning confidence means consumers are less apt to make a large purchase in the near future. That is assuming the PPI does not give us a significant surprise though. The PPI is much more important to the bond market than the sentiment index is, so look for it to be the biggest influence on Friday’s mortgage pricing.

Overall, it likely will be a moderately active week for mortgage rates. Besides the week’s economic news, look for the stock markets to be a major influence on trading. The most important day of the week is Friday with the PPI report on the agenda, but Wednesday’s 10-year Note auction could also heavily sway bond trading. It appears we will likely see the most movement in mortgage rates the latter part of the week unless the stock markets post sizable gains or losses the first part.

This Week’s Market Commentary_April 30, 2012

There are five economic reports scheduled for release this week that are relevant to mortgage pricing, but two of them are considered to be highly important to the financial and mortgage markets. In addition, there are several public speaking engagements by different regional Federal Reserve Presidents this week that may influence the markets.

However, I suspect that the economic reports and significant movement in stocks will be the biggest factors in whether mortgage rates move higher or lower this week.

March’s Personal Income & Outlays is the first of the economic releases, coming early tomorrow morning. It helps us measure consumers’ ability to spend and current spending habits, which is important to the mortgage market due to the influence that consumer spending-related data has on the financial markets. If a consumer’s income is rising, they are more likely to make additional purchases in the near future, fueling economic growth. This raises inflation concerns and has a negative impact on the bond market and mortgage rates. Current forecasts are calling for a 0.3% increase in the income reading and a 0.4% rise in spending. If we see smaller than expected readings, the bond market should open higher tomorrow morning, making an improvement to mortgage rates a good possibility.

The Institute for Supply Management (ISM) will post their manufacturing index for April late Tuesday morning. This is one of the first important economic reports released each month and gives us an indication of manufacturer sentiment. A reading above 50 means that more surveyed trade executives felt business improved during the month than those who felt it had worsened. This points toward more manufacturing activity and could hurt bond prices, pushing mortgage rates higher. Analysts are expecting to see a reading of 53.0, which would be a slight decline from March’s level of sentiment. The lower the reading, the better the news for bonds and mortgage rates.

March’s Factory Orders data is Wednesday’s only relatively important data. It will be released at 10:00 AM ET, giving us a measure of manufacturing sector strength. It is similar to last week’s Durable Goods Orders, except this report includes non-durable goods such as food and clothing. Generally, the market is more concerned with the durable goods orders like refrigerators and electronics than items such as cigarettes and toothpaste. This is why the Durable Goods report, usually has more of an impact on the financial markets than the Factory Orders report does. Still, a noticeably larger decline than the 1.8% that is expected could push mortgage rates slightly lower. But, an unexpected increase in new orders could lead to slightly higher mortgage pricing Wednesday.

The Labor Department will release its 1st Quarter Productivity and Costs data early Thursday morning. This information helps us measure employee productivity in the workplace. High levels of productivity help allow low-inflationary economic growth. If employee productivity is rapidly rising, the bond market should react favorably. However, a larger decrease than what is forecasted could cause bond prices to drop and mortgage rates to rise Thursday morning. It is expected to show a 0.4% decline in productivity.

Friday brings us the release of the almighty monthly Employment report, giving us April’s employment statistics. This is where we may see a huge rally or major sell-off in the bond market and potentially large changes in mortgage rates. The ideal situation for the bond and mortgage markets would be an increase in the unemployment rate and a much smaller number of payrolls added to the economy during the month than was expected.

Just how much of an improvement or worsening in rates depends on how much variance there is between forecasts and actual readings. This could turn out to be a wonderful day in the mortgage market, but it also carries risks of seeing mortgage rates move higher if the Labor Department posts stronger than expected readings. Current forecasts are calling for the unemployment rate to remain at 8.2% and that approximately 162,000 jobs were added during the month.

Overall, I believe Friday will be the most important day of the week with the employment data being posted. It can easily erase the week’s accumulated gains or losses in mortgage rates if it shows any surprises. We may actually see a noticeable change in rates Tuesday also if the ISM index shows favorable or unfavorable results. The middle part of the week will likely be the calmest, but I still suggest proceeding cautiously if still floating an interest rate. This would be a good week to maintain contact with your mortgage professional if you have not locked a rate yet.