This Week's Market Commantary_October 29

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This week has an active agenda with seven economic reports scheduled for release that have the potential to influence mortgage rates. There is at least one relevant report scheduled each day this week, making it likely to be an active one for the financial and mortgage markets.

The first release of the week will come Monday at 8:30 AM ET when September’s Personal Income and Outlays report will be posted. This data gives us an indication of consumer ability to spend and current spending habits. It is important 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 bad news for the bond market and mortgage rates because it raises inflation concerns, making long-term securities such as mortgage related bonds less attractive to investors. Analysts are expecting to see a 0.6% increase in income and a 0.4% rise in spending. Smaller than expected increases in both readings would be good news for the bond market and mortgage pricing.

October’s Consumer Confidence Index (CCI) is Tuesday’s only news. This Conference Board index will be released at 10:00 AM ET Tuesday. It gives us a measurement of consumer willingness to spend and is expected to show a small increase in confidence from last month’s 70.3 reading. That would mean that consumers felt a little better about their own financial situations than last month, indicating they are more likely to make large purchases in the near future. As long as the reading doesn’t exceed the forecasted 72.5, we will likely see the bond market react favorably to this report. This data is watched closely because it is related to consumer spending.

The 3rd Quarter Employment Cost Index (ECI) will be released at 8:30 AM ET on Wednesday. This data tracks employer costs for salaries and benefits, giving us an indication of wage inflation pressures. Rapidly rising costs raises wage inflation concerns and may hurt bond prices. It is expected to show an increase in costs of 0.5%. A smaller than expected increase would be good news for mortgage rates, but this is not one of the more important reports of the week. Therefore, it will likely take a large variance from forecasts for this report of have a noticeable influence on mortgage pricing.

Thursday has two relevant economic reports scheduled for release. The first is the 3rd Quarter Productivity reading at 8:30 AM ET. It is expected to show a 1.6% increase in worker productivity during the third quarter. A larger increase would be good news for the bond market because higher levels of employee productivity allow the economy to expand without inflationary pressures being a concern.

The key data of the day and one of the two highly important reports of the week will be the Institute for Supply Management’s (ISM) manufacturing index at 10:00 AM ET Thursday. This index measures manufacturer sentiment, which is important because it gives us an indication of manufacturing sector strength. It is considered to be one of the more important reports we see each month, partly because it is the first report every month that tracks the preceding month’s activity. Thursday’s release is expected to show a reading of 51.0, indicating that manufacturer sentiment slipped from September’s level. This means fewer surveyed business executives felt business improved during the month than in September, hinting at manufacturing sector weakness. A smaller than expected reading would be good news for bonds and mortgage rates, especially if it falls below the benchmark 50.0.

Friday brings us the release of two pieces of economic data, one of which is arguably the single most important monthly report. The Labor Department will post October’s Employment report early Friday morning. This report is comprised of many statistics and readings, but the most important ones are the unemployment rate, the number of new jobs added or lost during the month and average hourly earnings. Current forecasts call for the unemployment rate to move higher by 0.1% to 7.9%, an increase in payrolls of approximately 125,000 and a 0.2% increase in average earnings. Weaker than expected readings should renew concerns about the labor market and rally bonds enough to improve mortgage rates, especially if the stock markets react poorly to the news. On the other hand, if the report indicates employment sector strength, we could see mortgage rates spike higher Friday morning.

The second report of the day will be September’s Factory Orders data. This report is similar to last week’s Durable Goods Orders release except it includes orders for both durable and non-durable goods. It is expected to show a 4.5% increase in new orders from August’s level. A smaller than forecasted increase would be good news for the bond market and mortgage rates while a larger than expected rise is bad news and could contribute to higher mortgage pricing since it would indicate economic strength. It is worth noting though, that the Employment report is much more important to the financial and mortgage markets than this data is.

Overall, the single most important day is likely to be Thursday or Friday. In addition to the economic reports, I believe stocks will experience volatility that will also impact bond trading. The key to the week will be Friday’s employment numbers, but any significant swings in the stock markets may also influence whether mortgage rates close the week higher or lower than Monday morning’s levels.

This Week's Market Commentary_October 22nd

This week brings us the release of four economic reports and two relevant Treasury auctions for the bond market to digest in addition to another FOMC meeting. There is nothing of importance scheduled for release Monday or Tuesday, but we do have important events to watch every other day. The data scheduled this week ranges from low importance to extremely important so some reports will have a much bigger impact on trading than others. We also need to keep an eye on the stock markets as they can be heavily influential on bond market direction and mortgage rates. In other words, there is a pretty good chance of seeing noticeable movement in mortgage rates several days this week, especially if the major stock indexes rally or post sizable losses.

Wednesday starts the week’s agenda with the release of September’s New Home Sales at 10:00 AM ET. This data covers the small percentage of home sales that last week’s Existing Home Sales report didn’t include and is this week’s least important data. It is expected to show an increase in sales of newly constructed homes, but regardless of its results I am not expecting it to have a significant impact on mortgage rates Wednesday.

This week’s FOMC meeting is a two-day meeting that begins Tuesday and adjourns Wednesday afternoon. There really is no possibility of the Fed changing key short-term interest rates this week. But market participants will be looking at the post-meeting statement for any indication of change in Fed sentiment or possibly further development on recent talk of them issuing certain targets in particular economic readings that would trigger an automatic increase in key short-term interest rates. This would eliminate most of the guessing in the markets of what it will take for the Fed to start raising those rates. The meeting will adjourn at 2:150 PM ET Wednesday, so look for any reaction to the statement to come during afternoon hours.

Early Thursday morning, the Commerce Department will post Durable Goods Orders for September. This report gives us a measurement of manufacturing sector strength by tracking orders at U.S. factories for big-ticket items, or products that are expected to last three or more years. Analysts are currently calling for a jump in new orders of approximately 7.4%. If we see a much larger increase in orders, mortgage rates will probably rise as bond prices fall. On the other hand, a significantly weaker than expected reading should be good news for the bond market and mortgage rates, but this data can be quite volatile from month to month and is difficult to forecast. Therefore, a small variance from forecasts likely will have little impact on bond trading or mortgage pricing.

The final two economic reports will be released Friday morning, one of which is not only the most important report of the week, but also the most important we see regularly. The preliminary reading of the 3rd Quarter Gross Domestic Product (GDP) will be released early Friday morning. The GDP is considered to be the benchmark measurement of economic growth because it is the total of all goods and services produced in the U.S. and therefore is likely to have a major impact on the financial markets and mortgage pricing. There are three versions of this report, each a month apart. Friday’s release is the first and usually has the biggest impact on the markets. Current forecasts call for an increase of approximately 1.9% in the GDP, which would mean that the economy grew at a noticeably quicker pace than the 2nd quarter’s 1.3%. If this report shows a much smaller increase, I am expecting to see the bond market rally and mortgage rates fall. However, a larger than expected rise could lead to a rally in stocks, bond selling and a sizable increase in mortgage pricing Friday morning.

The week’s last report comes just before 10:00 AM ET Friday when the University of Michigan updates their Index of Consumer Sentiment for this month. Current forecasts show this index remaining nearly unchanged from the preliminary reading of 83.1. This report is moderately important because it helps us measure consumer confidence, which is believed to indicate consumers’ willingness to spend. If consumers are more confident in their own financial and employment situations, they are more apt to make a large purchase in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is watch closely.

This week also has Treasury auctions scheduled each day except Friday. The only two that have the potential to influence mortgage rates are Wednesday’s 5-year and Thursday’s 7-year Note sales. If those sales are met with a strong demand from investors, particularly Thursday’s auction, bond prices may rise during afternoon trading. This could lead to improvements to mortgage rates shortly after the results of the sales are posted at 1:00 PM ET each day. But a lackluster investor interest may create selling in the broader bond market and lead to upward revisions to mortgage rates.

Overall, it will likely be a fairly calm early part of the week but very active latter part for the markets and mortgage rates. I believe that the single most important day will probably end up being Friday with the extremely important GDP release in the morning, but anytime there is an FOMC meeting there is a good possibility of seeing the markets move significantly. Monday is likely to be the least important day, but we still could see some movement in rates as the markets prepare for the upcoming week. Accordingly, I strongly recommend maintaining contact with your mortgage professional this week if still floating an interest rate.

The Week's Market Commentary_October 15

This week brings us the release of six economic reports for the markets to digest. Unlike last week, the most important events are scheduled for the first part of the week while the latter part is much lighter. However, due to stock earnings along with the week’s economic news, we could see mortgage rates move several days with a decent possibility of seeing an intra-day revision or two.

Tuesday has two reports scheduled that may influence mortgage rates. The first is September's Consumer Price Index (CPI) at 8:30 AM ET. It measures inflationary pressures at the very important consumer level of the economy and is one of the most important reports that the bond market gets each month. Analysts are expecting to see a rise of 0.5% in the overall index and an increase of 0.2% in the core data reading. A larger than expected increase in the core reading could raise inflation concerns, pushing bond prices lower and mortgage rates higher. Inflation is the number one nemesis of the bond market because it erodes the value of a bond's future fixed interest payments. When inflation is a threat, even down the road, bonds sell for discounted prices that push their yields higher. And since mortgage rates tend to follow bond yields, this leads to higher rates for mortgage borrowers.

The second report of the day will be September's Industrial Production data at 9:15 AM ET, giving us an indication of manufacturing strength by tracking output at U.S. factories, mines and utilities. It is expected to show a 0.2% increase in output from August's level, meaning that manufacturing activity rose slightly. A larger than expected increase in production would be negative for bonds and mortgage rates as it would indicate economic strength. A decline in output would be favorable for the bond market and mortgage rates, but the CPI is much more influential to the markets than this report is and will be the focus of trading Tuesday morning.

September's Housing Starts is Wednesday's only release, coming at 8:30 AM ET. This report will probably not have much of an impact on the bond market or mortgage rates. It gives us a measurement of housing sector strength and mortgage credit demand by tracking construction starts of new homes, but is usually considered to be of low importance to the financial and mortgage markets. It is expected to show an increase in new home starts between August and September. I believe we need to see a significant surprise in this data for it to have an impact on mortgage rates Wednesday.

Thursday also has only a single monthly report scheduled for release with September’s Leading Economic Indicators (LEI) at 10:00 AM ET. This index attempts to measure future economic activity, particularly during the next three to six months. Current forecasts are calling for an increase of 0.2% from August's reading. This would indicate that economic activity is likely to increase slightly over the next couple of months. That would be relatively bad news for the bond market and mortgage rates, but this report is considered to be only moderately important. Therefore, a small increase would not be of much concern to the bond and mortgage markets. Ideally, we would like to see a decline in the index.

The National Association of Realtors will release September's Existing Home Sales data late Friday morning. This report gives us an indication of housing sector strength and mortgage credit demand by tracking home resales. I don't see it having much of an influence on the bond market or mortgage rates, but a reading that varies greatly from analysts' forecasts could lead to a slight change in mortgage pricing. It is expected to show a decline in sales from August to September, meaning the housing sector remained soft. That would be favorable news for the bond market since a weak housing sector makes a broader economic recovery less likely.

Overall, it appears that Monday or Tuesday are the likely candidates for the most important day of the week. In addition to the economic data, there are many companies posting earning reports during the week, including some big names such as Citigroup, IBM and Intel. If the corporate earnings releases are generally weaker than forecasts, stocks may suffer, making bonds more appealing to investors. The end result would likely be an improvement in rates. The flip side though is stronger than expected earnings that drive stocks higher, pushing bond prices lower and mortgage rates upward. Accordingly, please maintain contact with your mortgage professional if still floating an interest rate.

This Week's Market Commentary_October 9th

 This week brings us the release of four economic reports that are of interest to the mortgage market along with two fairly important Treasury auctions. The week also gets heavy in quarterly earnings releases for companies, which could cause significant movement in the stock markets. The earnings results could affect bond trading as investors move funds into stocks if the reports are good. The other possibility is that earnings would generally disappoint, meaning investors may move funds out of stocks and into bonds as a safe-haven. The latter would be good news for the bond market and mortgage rates.

The first report of the week comes at 2:00 PM ET Wednesday afternoon when the Federal Reserve posts its' Beige Book. This report details economic conditions throughout the U.S. by Fed region and is relied upon heavily by the Federal Reserve when determining monetary policy at their FOMC meetings. If it reveals stronger signs of economic growth from the last release, we could see mortgage rates revise higher Wednesday afternoon.

Also Wednesday is the first of two important Treasury auctions this week. The sale of 10-year Notes will be held Wednesday while 30-year Bonds will be sold Thursday. We often see some weakness in bonds ahead of the sales as the firms participating prepare for them. However, as long as the auctions 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.

August's Trade Balance report will be released early Thursday morning. It gives us the size of the U.S. trade deficit but is the week's least important report and likely will have little impact on the bond market and mortgage rates. Analysts are expecting to see a $43.8 billion deficit, but it will take a wide variance from forecasts to directly influence mortgage pricing.

The week closes with two reports being posted Friday morning, one of which is very important to the bond market and mortgage rates. That would be September's Producer Price Index (PPI) early Friday morning. This is one of the two very important inflation readings we get each month. This index measures inflationary pressures at the producer level of the economy. Analysts are expecting to see a 0.8% increase in the overall index and a 0.2% rise in the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices. A larger than expected increase could raise concerns in the bond market about future inflation and lead to higher mortgage rates Friday. However, weaker than expected readings should result in bond market strength and lower mortgage pricing.

The last report of the week is October's preliminary reading to the University of Michigan's Index of Consumer Sentiment late Friday morning. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets. Rising confidence means consumers feel better about their own financial and employment situations, meaning they are more apt to make a large purchase in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, any related date is watched closely. Good news for the bond market would be a sizable decline in consumer confidence, but due to the importance of Friday's other report, I suspect this data will have little impact on mortgage rates. It is expected to show a reading of 78.5, up slightly from September's final of 78.3.

Overall, I am expecting to see a fair amount of movement in mortgage rates again this week, but the biggest changes will likely come the latter part of the week. The key economic report is Friday's PPI but the Fed’s Beige Book also has the potential to influence the markets and mortgage rates if it shows any surprises. Therefore, we can label Wednesday or Friday as the most important day of the week. Also worth noting is the active week for corporate earnings that can cause a great deal of volatility in stocks and mortgage rates any day of the week. Accordingly, please proceed cautiously and maintain contact with your mortgage professional if you have not locked an interest rate yet.

This Week's Market Commentary

This week brings us the release of only three monthly economic reports that are likely to influence mortgage rates in addition to the minutes from the most recent FOMC meeting. However, two of those three releases are extremely important to the financial and mortgage markets and can cause significant movement in mortgage rates if they show surprises. It appears we will have a couple of days with noticeable changes in rates and a couple with little or no change.

Monday has the Institute for Supply Management (ISM) posting their manufacturing index for September at 10:00 AM ET. This index measures manufacturer sentiment and it can be heavily influential on the markets and mortgage rates. Analysts are expecting to see little change from August's 49.6 reading, meaning surveyed manufacturers felt business conditions were steady from the previous month. The 50.0 benchmark is extremely important because a reading below that level means more surveyed executives felt business worsened in the month than those who said it had improved. This data is important not only because it measures manufacturer sentiment, but it is also very recent data. Some economic releases track data that are 30-60 days old, but the ISM index is only a few weeks old, usually the first report we see each month. If it reveals a reading below 49.6, meaning sentiment fell short of expectations, we should see the bond market move higher and mortgage rates fall tomorrow.

Tuesday and Wednesday have nothing of concern scheduled for release. Look for the stock markets to drive bond trading and mortgage rates. Stock strength will likely pressure bonds and lead to an increase in mortgage rates, while stock selling should draw funds into bonds and help lower mortgage pricing.

Thursday's monthly economic data will come from the Commerce Department, who will post August's Factory Orders data at 10:00 AM ET. This manufacturing sector report is similar to last week's Durable Goods Orders release, but also includes orders for non-durable goods. It can impact the bond market enough to change mortgage rates if it varies from forecasts by a wide margin. Analysts are forecasting a decline of 6.0% in new orders, meaning manufacturing activity slowed considerably in August. This would be good news for the bond market and mortgage pricing, but I believe we will need to see a much larger decline for this report to create a noticeable improvement in rates.

Later Thursday is the release of the minutes from the last FOMC meeting. These may be a major mover of the markets or could be a non-factor, depending on what they say. The key will be concerns over the economy, inflation and the Fed's next move. If Fed members were concerned about the economy slipping into another recession, we may see the bond market move higher and mortgage rates lower Thursday afternoon. It will be interesting to see how much debate and disagreement amongst members took place during the meeting. However, since we already know about the QE3 program that was announced last month, I don’t believe we will see mortgage rates show much reaction to these minutes. They will be posted at 2:00 PM ET, so any reaction will come during afternoon trading.

Also worth noting is some news from overseas before the markets open Thursday. The Bank of England’s monetary policy announcement (equivalent to our FOMC) will be released at 7:15 AM ET while the European Central Bank will announce at 7:45 AM ET. The ECB will draw the most attention as global investors are extremely concerned about the Eurozone and what actions will be taken to shore up some of its’ member’s finances. We don’t normally address these events but recent announcements have drawn a lot of attention here, so we should be on the alert for a reaction in the bond and mortgage markets.

The Labor Department will post September's Employment report early Friday morning. This report will reveal the U.S. unemployment rate, number of new payrolls added or lost during the month and average hourly earnings. These are considered to be very important readings of the employment sector and can have a huge impact on the financial markets. The ideal scenario for the bond market is rising unemployment, falling payrolls and a drop in earnings.

If this report gives us weaker than expected readings, bond prices should move higher and we should see lower mortgage rates Friday. However, stronger than forecasted readings could cause a sizable spike in mortgage pricing and start an upward trend in rates. Analysts are expecting to see the unemployment rate remain at 8.1%, an increase of 120,000 new jobs from August's level and a 0.2% increase in earnings.

Overall, I suspect we will see a fair amount of volatility in the markets and mortgage rates this week, but the busiest days will probably be early and late in the week. There isn't that much data being released, but what is being posted is extremely important to the markets and highly influential on mortgage pricing. Labeling tomorrow and Friday as the most important days is easy due to the importance of the economic reports scheduled those days. The calmest days for mortgage rates will likely be Tuesday or Wednesday but major moves in the stock markets either day could lead to movement in mortgage rates. Even though there are only a couple of relevant economic reports being posted this week, it would still be prudent to maintain fairly constant contact with your mortgage professional this week if still floating an interest rate.