Week of April 16 to 20, 2012 Market Commentary

This week brings us the release of five economic reports that are relevant to mortgage rates, the first being the most important one. It will be posted early tomorrow morning when the Commerce Department releases March’s Retail Sales data. 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 a 0.3% increase in sales last month. 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 reading could push bond prices higher and mortgage rates lower tomorrow.

March’s Housing Starts is the next report, coming early Tuesday morning. It gives us a measurement of housing sector strength and mortgage credit demand by tracking starts of new home construction and the number of permits issued for future starts. This data usually doesn’t cause much movement in mortgage pricing unless it varies greatly from forecasts. It is expected to show a slight increase in construction starts of new homes. Good news for the bond market and mortgage rates would be a decline in home starts, indicating housing sector weakness.

March’s Industrial Production data will be posted at 9:15 AM ET Tuesday. It gives us a measurement of 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 0.2%. 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.
Thursday has the remaining two reports scheduled, starting with March’s Existing Homes Sales numbers from the National Association of Realtors at 10:00 AM ET. This report also gives us an indication of housing sector strength and mortgage credit demand. It is considered to be moderately important to the markets, but can influence mortgage pricing if it shows a sizable variance from forecasts. Ideally, the bond market would like to see a drop in home resales because a soft housing sector makes a broader economic recovery difficult. Analysts are expecting to see an increase in sales between February and March. The larger the increase, the worse the news for bonds and mortgage rates.

The final report of the week will also be posted late Thursday morning when the Conference Board releases their Leading Economic Indicators (LEI) for March. This data attempts to measure economic activity over the next three to six months. This is considered to be a moderately important report, so we may see a slight movement in rates as a result of this data. It is expected to show an increase of 0.2%, meaning it is predicting slight growth in economic activity over the next several months. A decline would be considered good news for the bond market and could lead to slightly lower mortgage rates, assuming the housing report doesn’t show a significant surprise.

Overall, it will likely be a moderately active week for mortgage rates. However, unlike many weeks, the most important news comes during the early part of the week. Friday appears to be the best candidate for least active day, but Wednesday may also be fairly quiet. The stock markets will also influence bond trading and mortgage pricing this week as we get more corporate earnings releases. In other words, I expect to see only small changes to mortgage rates, but see them each day. At least once we get past tomorrow’s data.

This Week’s Market Commentary

Monday’s bond market has opened in positive territory following early stock weakness. As expected, the stock markets are showing sizable losses as they react for the first time to Friday’s Employment numbers. The Dow is currently down 153 points while the Nasdaq has lost 40 points. The bond market is currently up 7/32, which with Friday’s strength after pricing was issued, should improve this morning’s mortgage rates by approximately .250 of a discount point.

Worth noting is that this morning’s early selling has brought the Dow below 13,000 again. It is early in the day and a lot can happen between now and closing, but closing and staying below 13,000 should bode well for the bond market and mortgage rates. That was a threshold that was difficult to cross, so giving it up could signal further stock losses in the immediate future. This would create a flight-to-safety scenario that would likely bring funds from stocks into bonds.

There is no relevant economic news scheduled for today or tomorrow. The rest of the week brings us the release of five economic reports that are relevant to mortgage rates, in addition to a couple of Treasury auctions that have the potential to be influential on the bond market and mortgage pricing. Corporate earnings season also kicks off this week, which will be instrumental in stock market direction and possibly mortgage rate movement.

The first report of the week comes Wednesday afternoon when the Federal Reserve will post its Fed Beige Book report at 2:00 PM ET. This report is named simply after the color of its cover and details economic conditions throughout the U.S. by Federal Reserve 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. Unexpected signs of strong economic growth or rising inflation would be considered negative for bonds and mortgage rates. Slowing economic conditions with little sign of inflationary pressures would be considered favorable for bonds and mortgage pricing.

Overall, look for the most movement in rates the latter part of the week due to the Producer and Consumer Price Indexes being released and the two Treasury auctions that are scheduled, but this morning was a good start. There is also a high probability that the stock markets will also influence bond trading and mortgage rates due to earning releases that could disappoint the markets. 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.

This Week’s Market Commentary

This week brings us the release of three monthly economic reports in addition to the minutes from the most recent FOMC meeting. While three reports is usually not much of a concern, two of the week’s three are considered to be highly important to the markets and mortgage rates. Thrown in the fact that this is a holiday-shortened trading week and we have the mix for a very interesting week.

The first report comes late tomorrow morning when the Institute for Supply Management (ISM) will release their manufacturing index. This index gives us an important measurement of manufacturer sentiment by surveying trade executives and is one of the more important of this week’s data. A reading above 50 means more surveyed executives felt business improved during the month than those who said it had worsened. This month’s report is expected to show a reading of 53.0, which would be a decline from February’s reading of 52.4. This means that analysts think business sentiment slipped from last month’s level. That would be fairly good news for the bond market and mortgage rates. A noticeable decline would be favorable for rates while an increase would be negative.

February’s Factory Orders will be released early Tuesday morning. This data is similar to last week’s Durable Goods Orders report, except it includes orders for both durable and non-durable goods, giving us a measurement of manufacturing sector strength. It is also the least important of this week’s reports. Unless it varies greatly from forecasts of a 1.4% increase, I suspect that it will be a non-factor in the mortgage market.

The next important event comes Tuesday afternoon when the Fed releases the minutes of their last FOMC meeting. Market participants will be looking at them closely. 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 or the likelihood of a Fed move to boost economic activity, could cause afternoon volatility in the markets Tuesday and possible changes in mortgage pricing.

Wednesday doesn’t have any economic data scheduled for release from a government agency or reliable source. There are a couple of private sector employment-related reports being posted, but they are not considered highly important to the bond market or mortgage rates. These reports have not been accurate in predicting results of government reports, so they usually do not have much of an impact on bond trading or mortgage pricing. We do see some reaction to them if they reveal a surprisingly significant indication of employment strength or weakness. However, I don’t believe they deserve much concern or attention in regards to mortgage pricing.

The biggest news of the week will come early Friday morning when the Labor Department posts March’s Employment report, giving us the U.S. unemployment rate and the number of jobs added or lost during the month. This is an extremely important report to the financial and mortgage markets. It is expected to show that the unemployment rate remained at 8.3% and that approximately 200,000 payrolls were added during the month. A higher unemployment rate and a smaller than expected payroll number would be good news for bonds and would likely push mortgage rates lower Friday morning because it would indicate weakness in the employment sector of the economy.

Overall, I think it is going to be an active week for the mortgage market. The most important day is Friday, but not only because the almighty monthly Employment report is being posted. Friday is Good Friday, meaning the stock markets will be closed. However, due to the release of the Employment report, the bond market will be open until noon ET Friday. This means that bond trading will take place without the influence of stock gains or losses. Tomorrow is also going to be a big part of whether rates fall or rise for the week, so please maintain contact with your mortgage professional if still floating an interest rate.