Weekly Mortgage 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.

Weekly Mortgage Commenary_August 19, 2013

This week brings us the release of only three pieces of monthly economic data, none of which is considered to be highly important. In addition to the economic data, the minutes from the last FOMC meeting will also be posted. There is nothing of relevance to mortgage rates scheduled for release Monday or Tuesday, so look for the stock markets to drive bond trading and mortgage rates until we get to mid-week.  

 

The first piece of data will be July’s Existing Home Sales report late Wednesday morning. The National Association of Realtors will release this report, giving us a measurement of housing sector strength and mortgage credit demand. It covers a very high percentage of all home sales in the U.S., but usually does not have a major influence on bond trading and mortgage rates unless it varies greatly from analysts’ forecasts. It is expected to show an increase from June’s sales, meaning the housing sector strengthened last month. This would generally be bad news for the bond market and mortgage rates because a strengthening housing sector makes broader economic growth more likely. But unless the increase is much larger than current forecasts, the report will likely have a minimal impact on Wednesday’s mortgage pricing.

Also Wednesday, we will get the minutes from the last FOMC meeting. There is a pretty good possibility of the markets reacting to them following their release. Market participants will be looking for how Fed members voted during the last meeting and any comments about inflation concerns in the economy, economic growth and the Fed’s plans for their current bond buying program (QE3). The goal is to form opinions about when Chairman Bernanke and friends are likely to start tapering their current $85 billion monthly bond purchases. 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. This is one of those events that can cause significant movement in rates after its release or be a non-factor, so be prepared for a move, but not surprised if the impact on rates is minimal.

The Conference Board is a New York-based business research group that will post its Leading Economic Indicators (LEI) for July late Thursday morning. This index attempts to measure economic activity over the next three to six months and is considered to be moderately important. A higher than expected reading is bad news for the bond market because it indicates that the economy may be strengthening more than thought. However, a weaker reading means that the economy may not grow as much as predicted, making stocks less appealing to investors. This also eases inflation concerns in the bond market and could lead to slightly lower mortgage rates Thursday if the stock markets remain calm. It is expected to show an increase of 0.5 % in the index, indicating moderate economic growth over the next couple of months. It will take a sizable difference between forecasts and its actual reading for this report to noticeably influence mortgage rates.

July’s New Home Sales data is the final report of the week, which will be released at 10:00 AM ET Friday morning. This report will give us another indication of housing sector strength and mortgage credit demand, but only tracks a small portion of all home sales. It usually doesn’t have much of an impact on bond prices or mortgage rates unless it varies greatly from forecasts. Current forecasts are calling for a minor decline in sales of newly constructed homes from June to July. An unexpected increase in sales would hint at sector strength, making the data negative for mortgage rates.

Overall, Wednesday is likely to be the most active day for mortgage rates and Tuesday appears to be the best candidate for least important. Stocks will probably be a contributing factor to bond movement several days with no key economic data scheduled this week. Afternoon weakness in bonds Friday pushed the benchmark 10-year Treasury Note yield up to 2.83% Friday, continuing its upward trend. Unfortunately, I don’t believe we have a good chance of seeing that reverse until we get closer to 2.95%. Since mortgage rates tend to follow bond yields this is would be bad news for mortgage shoppers. Therefore, proceed cautiously if still floating an interest rate and closing in the near future.

Weekly Mortgage 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.