This Week's Market Commentary

There are only two pieces of monthly economic data scheduled for release this week. Neither of them is considered to be highly important, so we don’t have much to pin our hopes on or to be concerned with this week.

There are two Treasury auctions on the calendar that may influence mortgage rates the middle part of the week and the second part of Fed Chairman Bernanke’s testimony to Congress, but no important economic data.

Nothing of concern is due tomorrow, so look for the stock markets and news from Europe- particularly Greece, to drive the markets tomorrow. Fed Chairman Bernanke will speak to the Senate Budget Committee at 10:00 AM Tuesday. I don’t expect him to say anything different than he said last week to the House Budget Committee, but the Q&A portion of his appearance could lead to something new. It is worth watching, but it will probably not lead to a noticeable change in the markets or mortgage rates.

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 one as it will give us a better indication of 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.

With little monthly and no quarterly economic reports being posted, Thursday’s weekly release of unemployment figures may end up moving the markets and mortgage rates more than it traditionally does. The Labor Department is expected to announce that 370,000 new claims for unemployment benefits were filed last week, rising slightly from the previous week’s total. The higher the number of new claims for benefits, the better the news for the bond market and mortgage pricing as it would indicate weakness in the employment sector.

The first monthly report comes early Friday morning when December’s Goods and Services Trade Balance data will be posted. This report measures the U.S. trade deficit and can affect the value of the U.S. dollar versus other currencies, but it usually does not cause enough movement in bond prices to affect mortgage rates. It is expected to show a $48.2 billion trade deficit.
February’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment will be r
eleased late Friday morning. This index measures consumer willingness to spend and 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 74.0, down from January’s final reading of 75.0. That would indicate consumers were less optimistic about their own financial situations than last month and are less likely to make large purchases in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, this would be considered good news for bonds and mortgage pricing.

Overall, despite being a fairly light week in terms of economic releases and relate events, it is still relatively crucial for the mortgage market. We saw the yield on the benchmark 10-year Treasury Note spike higher Friday as a result of the stronger than expected employment data. Stocks rallied as a result of that data, extending the 2012 stock rally that has pushed the Dow up over 5% and the Nasdaq up 11% year-to-date. Both indexes are at their highest levels since May 2008 and December 2000 respectively. This has me believing we are due to see a pullback in stocks fairly soon. If/when this happens, we should see funds shift back into bonds for safety, leading to lower mortgage rates. Keep in mind that this is more or less just speculation, but I am expecting to move to a less conservative approach regarding short-term mortgage rates in the near future.

This Week's Market Commentary

This week is quite busy in terms of economic data and other events that are relevant to mortgage rates and is likely to be an active one for mortgage rates. There are five economic releases scheduled for the week in addition to the first Federal Open Market Committee (FOMC) meeting of the year that will include a press conference with Chairman Bernanke, two potentially influential Treasury auctions and the President’s State of the Union address. All but one of the five economic reports are considered to be of moderate or high importance, meaning we should see quite a bit of movement in mortgage rates this week.

There is nothing of relevance scheduled for tomorrow or during trading hours Tuesday, thus we can expect the stock markets and any potential news from overseas to drive bond trading and mortgage pricing. If the major stock indexes post strong gains, bonds will probably falter, leading to higher mortgage rates the early part of the week. President Obama will make his State of the Union address at 9:00 PM ET Tuesday evening. Topics and parts of the speech will be leaked prior, which may influence the markets during regular hours the first two days of the week. The biggest reaction to his words will come Wednesday morning.
Wednesday also has no relevant economic data scheduled for release, although it does have this year’s first FOMC meeting results. The meeting will begin Tuesday and adjourn at 12:30 PM ET Wednesday. It is expected to yield no change to short-term interest rates, but as is often the case, traders will be looking for any indication of the Fed’s next move and when they may make it. I believe that there is little chance of indicating a possible rate hike in the near future, but any hints of a change in theories or timetable by the Fed will cause afternoon volatility in the financial and mortgage markets. The meeting will adjourn early instead of the regular 2:15 PM time because it is one of four meetings this year that will be followed by a press conference hosted by Fed Chairman Bernanke.

Thursday morning brings us the release of three of the week’s economic reports. The first is December’s Durable Goods Orders at 8:30 AM ET. This data helps us measure manufacturing strength by tracking new orders at U.S. factories for products that are expected to last three or more years, also known as big-ticket items. The data often is quite volatile from month- to-month, but is currently expected to show an increase in orders of approximately 2.0%. A smaller than expected increase would be considered good news for bonds and mortgage rates, but a slight variance likely will have little impact on Thursday’s mortgage pricing.
Next is December’s New Home Sales report at 10:00 AM ET. It is considered to be the sister release to last week’s Existing Home Sales, giving us a small snapshot of housing sector strength. It tracks a much smaller portion of home sales than last week’s report did and is forecasted to show an increase in sales of newly constructed homes. However, this data is not important enough to heavily influence mortgage pricing unless it varies greatly from forecasts.

The third report of the day is December’s Leading Economic Indicators (LEI) at 10:00 AM ET. The LEI attempts to measure economic activity over the next three to six months. It is considered to be of moderate importance to the bond and mortgage markets. Analysts are currently expecting the Conference Board to post a 0.7% increase, meaning that economic growth over the next few months will likely rise fairly quickly. Generally speaking, this would be bad news for the bond market because a strengthening economy makes long-term securities such as mortgage bonds less attractive to investors.

The remaining two economic reports will be released Friday morning, one of which is arguably the single most important reports that we see regularly. That would be the initial reading of the 4th Quarter Gross Domestic Product (GDP) early Friday morning. This data is so important because it is considered to be the best measurement of economic activity. The GDP itself is the total sum of all goods and services produced in the United States. Its results usually have a major impact on the financial markets and can cause significant changes in mortgage rates. There are three readings to each quarter’s activity, each released approximately one month apart. The first reading, which usually carries the most significance, is expected to be an increase of 3.1%. A noticeably weaker reading would be great news for the bond market, questioning the pace of the economic recovery. That would likely fuel stock selling and a rally in bonds that would push mortgage rates lower Friday morning. However, a stronger than expected reading should fuel bond selling and higher mortgage rates.

The last report of the week is the revised reading to the University of Michigan’s Index of Consumer Sentiment. This index is a measurement of consumer confidence that is thought to indicate consumer willingness to spend. If confidence is rising, consumers are more apt to make large purchases in the near future. Since consumer spending makes up two thirds of the U.S. economy, any related data is watched closely. I don’t see this data having much of an impact on the markets or mortgage rates due to the importance of the GDP reading.

And if we didn’t have enough to watch already, there are two relatively important Treasury auctions for the markets to digest. The Fed will auction 5-year and 7-year Treasury Notes Wednesday and Thursday, respectively. If they are met with a strong demand from investors, the broader bond market may rally during afternoon hours those days. If the sales draw a lackluster interest, they could lead to bond selling and higher mortgage rates during afternoon hours those days.

Overall, look for Wednesday or Friday to be the biggest days for mortgage rates. Friday’s GDP is the single most important piece of data this week, but we may see quite a bit of movement in rates Wednesday morning and again in the afternoon following the Fed’s time in the spotlight. I would be quite surprised if we did not see a very active week in rates, including intra-day revisions on multiple days. I strongly recommend that constant contact is maintained with your mortgage professional this week if still floating an interest rate

This Week's Market Commentary (01/02/2012)

This week bring us the release of only three monthly reports that are relevant to the bond market and mortgage rates, but two of them are considered to be highly important.

In addition to those three reports, we also will get the minutes from the last FOMC meeting that may influence the markets and possibly mortgage rates. The financial markets are closed today due to the New Year’s Day holiday.
The first report is the Institute for Supply Management’s (ISM) manufacturing index for December late tomorrow morning. This highly important index measures manufacturer sentiment. A reading above 50 means that more surveyed manufacturing executives felt that business improved during the month than those who felt it had worsened.

That indicates manufacturing sector strength rather than contraction. Analysts are currently expecting to see a 53.4 reading in this month’s release, meaning that sentiment strengthened from November’s 52.7. A smaller reading will be good news for the bond market and mortgage shoppers, while a higher than expected reading could lead to higher mortgage rates tomorrow morning as it would point towards economic strength.

Also tomorrow is the release of the minutes from the last FOMC meeting. This will give market participants insight to the Fed’s thinking and concerns regarding the economy, inflation and monetary policy. It is one of those pieces of information that may cause a great deal of volatility in the markets or be a non-factor, depending on what the minutes show. They will be released at 2:00 PM ET, so they won’t affect the markets or mortgage rates until afternoon hours.

The Commerce Department will post November’s Factory Orders data late Wednesday morning. This data gives us a fairly important measurement of manufacturing sector strength. It is similar to the Durable Goods Orders release that was posted late last week, except this report includes orders for both durable and non-durable goods. Durable goods are items that are expected to last three or more years such as electronics and autos. Examples of non-durable goods are food and clothing. Analysts are expecting to see an increase of 2.1% in new orders. This report generally does not have a huge impact on the bond market or mortgage rates, but it can influence bond trading enough to create a minor change in rates. The smaller the increase, the better the news for mortgage rates.

The final report of the week comes Friday morning when the Labor Department will post December’s employment figures. The Employment report is arguably the most important monthly release we see. It gives us the national unemployment rate, the number of jobs added or lost during the month and average hourly earnings, which is a key measure of wage inflation. Rising unemployment, a decline in payrolls and earnings would be ideal news for the bond market.
Current forecasts call for a 0.1% rise from November’s unemployment rate of 8.6%, 150,000 new jobs added to the economy and an increase in earnings of 0.2%. If we see weaker than expected results, mortgage rates should improve Friday. However, stronger than expected readings will likely raise optimism about the economy, pushing mortgage rates sharply higher.

Overall, the key data of the week will be Friday’s Employment report, but look for tomorrow and Wednesday to be active due to the economic data and FOMC minutes scheduled. If they give us favorable results, mortgage rates will likely move lower for the week. But if not, we can expect to see mortgage rates move higher on the week.

This Week's Market Commentary

This week brings us the release of only one piece of monthly economic data that is considered important to mortgage rates. It is a true holiday-shortened week with the financial markets closed today for observance of Christmas and the bond market closing early Friday in recognition of the New Year’s Day holiday next weekend.

However, some traders will be working a short week, especially as it progresses, so we can expect to see some very light trading. That could mean little if nothing surprises the markets, but a significant piece of news or unexpected results from the little data being posted can cause a larger reaction than normal due to fewer traders working.

The week’s only and the year’s final important release comes late tomorrow morning when the Conference Board will post their Consumer Confidence Index (CCI) for December. This is a fairly important release because it measures consumer willingness to spend. If consumers are more confident about their personal financial situations, they are more apt to make large purchases. Since consumer spending makes up two-thirds of the U.S. economy, any related data is watched closely by market participants and can have a significant influence on mortgage rate direction. Current forecasts are calling for an increase in confidence from November’s reading of 56.0. Analysts are expecting tomorrow’s release to show a reading of 58.0, meaning consumers felt better about their own financial situation than they did in November. The lower the reading, the better the news for bonds and mortgage pricing.

With little economic data being posted this week, the Labor Department’s weekly unemployment numbers may help influence the markets and mortgage rates more than usual. They are expected to show Thursday that 368,000 new claims for unemployment benefits were filed last week, which would be an increase from the previous week. We usually don’t worry too much about this data because it tracks only a single week’s worth of new claims, but we should probably pay a little more attention to this particular release as it could impact mortgage rates slightly.

The bond market will close at 2:00 PM ET Friday, but the stock markets are scheduled to be open for a full day of trading. All banks and major U.S. financial markets will be closed Monday in observance of the New Year’s Day holiday. Everything will reopen next Tuesday morning for regular hours.

Overall, tomorrow will be the most important day of the week, but we may see some volatility any day. The thinnest trading will probably take place the latter part of the week as traders head home for the holiday. Despite last week’s shortened schedule, we saw plenty of movement in mortgage rates. This week likely will be the same as investors look to make year-end adjustments to their portfolios. Accordingly, I recommend keeping in contact with your mortgage professional if still floating an interest rate and closing in the immediate future.

This Week's Market Commentary

This holiday-shortened trading week brings us the release of eight monthly or quarterly economic reports in addition to two semi-relevant Treasury auctions.

None of the releases are considered to be highly important to the markets and mortgage rates, but several of them do have the potential to cause some movement in rates. The more important news comes later in the week. Therefore, we may see more movement in mortgage pricing as the week progresses.
There is nothing of relevance scheduled for release tomorrow. This means we can look towards the stock markets for guidance on bond and mortgage rate direction. The Europe debt crisis will likely be in the headlines this week as leaders move to avoid downgrades by credit rating agencies that would be equivalent to adding gasoline to the fire. If the actions taken overseas are strong enough to calm investor fears here, stocks may bode well for the week, making it difficult for bonds to rally and push mortgage rates lower. On the other hand, if it becomes evident that the downgrades to their debt are unavoidable, fears about the impact they would have on the global economy will probably fuel stock selling and bond buying here. The latter would be good news for mortgage rates.

Tuesday’s only data is November’s Housing Starts, but it is the week’s least important data. I don’t see it causing much movement in mortgage rates unless it shows a huge variance from expectations. It is expected to show little change in construction starts of new homes, hinting at a flat housing sector last month. Generally speaking, an increase in new starts would be bad news for bonds and mortgage pricing, but unless there is a significant surprise it will likely have little impact on Tuesday’s mortgage rates.

November’s Existing Home Sales figures will be posted late Wednesday morning. This release will come from the National Association of Realtors while its sister release, Friday’s New Home Sales data, is a Commerce Department report. Both give us a measurement of housing sector strength and mortgage credit demand, however, neither is considered to be of high importance. And both of the reports are expected to show increases in sales, indicating housing sector growth. Weaker than expected readings would be considered positive for bonds and mortgage rates because they hint at a still weakening housing market. But unless the actual readings vary greatly from forecasts, the results will probably have little or no impact on mortgage rates.

Thursday brings us the release of three reports, with the first being the final revision to the 3rd Quarter Gross Domestic Product (GDP). I don’t think this data will have an impact on mortgage rates unless it varies greatly from its expected reading. Last month’s first revision showed that the economy expanded at a 2.0% annual pace during the quarter and this month’s revision is expected to show no change. A revision higher than the 2.0% rate that is expected would be considered bad news for bonds. But since this data is quite aged at this point, I don’t think it will have much of an impact on mortgage rates Thursday.

The second report of the day comes just before 10:00 AM ET when the revised University of Michigan Index of Consumer Sentiment for December is posted. Current forecasts are calling for a small upward revision from the preliminary reading of 67.7. This is fairly important because rising consumer confidence indicates that consumers may be more apt to make large purchases in the near future. A reading above the 68.0 that is forecasted would be negative for bonds and mortgage rates.

The Conference Board will release their Leading Economic Indicators (LEI) for the month of November. This 10:00 AM release attempts to measure or predict economic activity over the next three to six months. It is expected to show a small increase in activity, meaning that it predicts a slowly expanding economy over the next several months. This probably will not have much of an impact on bond prices or affect mortgage rates unless it exceeds current forecasts of a 0.3% increase from October’s reading. The lower the reading, the better the news for bonds and mortgage pricing. If it shows a smaller increase, the bond market may move slightly higher, leading to a minor improvement in rates.

The final two economic reports of the week come Friday morning along with November’s New Home sales. The first is November’s Personal Income and Outlays data. It will give us an important measurement of consumer ability to spend and current spending habits. Since consumer spending makes up two-thirds of the U.S. economy, any related data usually has a noticeable impact on the financial markets and mortgage rates. Current forecasts are calling for a 0.2% increase in income and a 0.3% increase in spending. If this report reveals weaker than expected readings, we should see the bond market improve and mortgage rates drop slightly Friday morning.

November’s Durable Goods Orders is the last report, also being posted early Friday morning. This data gives us an important measurement of manufacturing sector strength by tracking orders for big-ticket items or products that are expected to last at least three years. Analysts are expecting the report to show a 2.0% rise in new orders. A smaller increase in orders would indicate that the manufacturing sector was weaker than many had thought. This would be good news for the bond market and should drive mortgage rates lower. However, a larger jump in orders could lead to mortgage rates moving higher early Friday morning. This data is known to be quite volatile from month-to-month, so it is not unusual to see large headline numbers on this report.

This week also has Treasury auctions scheduled the first three days. The two that are most likely to influence mortgage rates are Tuesday’s 5-year and Wednesday’s 7-year Note sales. If those sales are met with a strong demand, particularly Wednesday’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 demand may create bond selling and upward revisions to mortgage rates.

Overall, I am expecting to see some movement in the markets and mortgage rates, especially if we get some surprising results from the week’s data or news about Europe’s financial crisis. Despite the holiday season, we need to keep a cautious approach toward rates because we are likely to see very thin trading (light volume) as a result of many traders keeping short hours or home for the holiday altogether. This means that firms that trade bonds will likely be keeping only a skeleton staff the latter part of the week and raises the possibility of a stronger reaction to surprises in the economic data than we normally would see.

The least important day for mortgage rates will likely be tomorrow unless something drastic happens overnight. We will probably see the most movement in rates Friday, but Thursday’s economic data can also move mortgage pricing noticeably. With the Christmas holiday next weekend, it is being observed next Monday. The bond market will close early this Friday afternoon ahead of the holiday and will reopen next Tuesday morning. Accordingly, proceed cautiously this week if still floating an interest rate and closing by the end of the year.

This Week's Market Commentary

This week is fairly light in terms of the number of economic releases scheduled for release. There are only three monthly or quarterly reports on the agenda that have the potential to influence mortgage rates and none of them are considered to be highly important. That means that the stock markets could be the focal point multiple days, especially the middle part of the week.


October’s Factory Orders is the first, coming late this morning. This report is similar to the Durable Goods Orders report that was released the week before last, except this one includes manufacturing orders for both durable and non-durable goods. This data usually isn’t a major influence on bond trading, but with little data this week that can impact mortgage rates, it could draw more attention than usual. Analysts are expecting to see a decline in new orders of approximately 0.4%. The larger decline, the better the news for bond prices and mortgage rates because it would signal manufacturing sector weakness.

There is no other relevant economic news scheduled for release until Friday morning. October’s Goods and Services Trade Balance report will be posted early Friday morning. This report gives us the size of the U.S. trade deficit, but it is considered to be of low importance to mortgage rates. It is expected to show a $44.0 billion trade deficit. Unless it varies greatly from forecasts, I don’t expect this data to affect mortgage pricing Friday.

Also Friday is the release of December’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment. This index measures consumer willingness to spend and can usually have enough of an impact on the financial markets to change mortgage rates slightly. Consumer sentiment or confidence is tracked because the more comfortable consumers are about their own financial situations, the more likely they are to make a large purchase in the near future. Since consumer spending makes up two-thirds of the economy, any related data is watched closely. Friday’s release is expected to show a reading of 65.0, which would be an increase from last month’s final reading. A decline in confidence would be considered good news for the bond market and mortgage rates.

Overall, today will probably bring us the most movement in rates as the markets digest weekend news. I don’t believe we will see as much volatility in the stock markets as we saw last week though. Interestingly, despite the sizable rally in stocks last week, mortgage rates didn’t take much of a hit. Even though mortgage bonds showed resilience last week, I still think that the upward risk outweighs the likelihood of seeing noticeable improvements in rates in the immediate future. Therefore, I recommend maintaining contact with your mortgage professional if still floating an interest rate.

This Week's Market Commentary

There are six pieces of economic news that may affect mortgage rates this week.

Some of the data is considered highly important to the financial and mortgage markets, so it will likely be an active week for mortgage rates. As the week progresses, the data gets more important.

Unlike most Mondays, there is data being posted this morning with the release of October’s New Home Sales report. It will give us an indication of housing sector strength, but is the week’s least important release. Analysts are expecting to see little change between September’s and October’s sales of newly constructed homes. It will take a large change in sales for this data to influence mortgage rates.

November’s Consumer Confidence Index (CCI) will be released late Tuesday morning by the Conference Board. It gives us a measurement of consumer willingness to spend. If consumer confidence is rising, analysts believe that consumers are more apt to make larger purchases, essentially fueling economic growth. This makes long-term securities such as mortgage-related bonds less attractive to investors and usually leads to higher mortgage rates. Analysts are expecting to see a sizable increase in confidence from last month’s level, meaning consumers were more optimistic about their own financial situations this month than they were last month. A weaker reading than the 44.0 that is expected would be good news for mortgage rates, while a stronger reading could push mortgage rates higher Tuesday.

The next piece of data that we need to be concerned with comes early Wednesday morning when revised 3rd Quarter Productivity numbers are posted. This index is expected to show an upward revision from the preliminary reading of worker productivity. Higher levels of productivity are thought to allow the economy to expand without inflationary pressures rising. This is good news for the bond market because economic growth itself isn’t necessarily bad for the bond market. It’s the conditions around an expanding economy, such as inflation, that hurt bond prices and mortgage rates. Current forecasts are calling for an annual rate of 2.6%, down from the previous estimate of 3.1%.

Also Wednesday, the Federal Reserve will release their Beige Book at 2:00 PM ET. This report, which is named simply after the color of its cover, details economic conditions by region. That information is relied on heavily during the FOMC meetings when determining monetary policy, so its results can influence bond trading and mortgage rates if it shows any significant surprises. More times than not, this report will not influence the markets enough to cause intra-day changes to mortgage rates, but the potential to do so does exist.

November’s manufacturing index from the Institute for Supply Management (ISM) will be posted at 10:00 AM ET Thursday. This index measures manufacturer sentiment and can have a considerable impact on the financial markets and mortgage rates. Current forecasts call for a small decline in sentiment from October to November. October’s reading was previously announced as 50.8. A weaker reading than the expected 51.0 would be good news for the bond market and mortgage rates. A reading above 50 means that more surveyed trade executives felt business improved during the month than those who felt it had worsened. The lower the reading the better the news for bonds because waning sentiment indicates a slowing manufacturing sector and makes a broader economic recovery less likely.

The biggest news of the week comes Friday morning when the Labor Department posts November’s Employment figures. This is arguably the most important monthly report we see. It is comprised of many statistics and readings, but the most watched ones are the unemployment rate, the number of news jobs added or lost during the month and average hourly earnings. Current forecasts call for no change in the unemployment rate of 9.0% while 117,000 new jobs were added to the economy. The income reading is forecasted to show an increase of 0.2%. An ideal scenario for mortgage shoppers would be a higher unemployment rate than 9.0%, a smaller increase in payrolls and no change in the earnings reading. If we are fortunate enough to hit the trifecta with all three, we should see the stock markets fall, bond prices rise and mortgage rates move lower Friday. However, stronger than expected readings would likely fuel a stock rally and bond sell-off that would lead to higher mortgage rates.

Overall, the most important day of the week is Friday with the employment figures being released, but we may also see sizable movement in rates Thursday. Friday’s employment data could cause a significant change in rates, but Thursday’s ISM index is also one of the more important reports we see each month. If Friday’s data reveals stronger than expected results we may see rates spike higher after its release, possibly erasing any gains from the week. It will probably be the key to rates moving lower or higher for the week. I suspect it will be a fairly active week for the markets and mortgage pricing, especially the latter part, so it would be prudent to maintain contact with your mortgage professional if still floating an interest rate.

This Week's Market Commentary

This holiday-shortened week brings us the release of five relevant economic reports for the markets to digest along with the last FOMC meeting’s minutes and two potentially important Treasury auctions.

All of the week’s data is being posted over three days due to the Thanksgiving holiday, so the first part of the week should be interesting for mortgage shoppers.

October’s Existing Home Sales data will be posted by the National Association of Realtors late Monday morning. It gives us a measurement of housing sector strength and mortgage credit demand by tracking home resales. This report is expected to show a decline in sales, meaning the housing sector weakened last month. That would be good news for the bond market and mortgage pricing, but unless it shows a significant surprise, it will likely not have a major impact on tomorrow’s mortgage rates.

Tuesday has the first revision to the 3rd Quarter Gross Domestic Product (GDP). It is expected to show little change from last month’s preliminary reading of a 2.5% annual rate of expansion. The GDP measures the total of all goods and services produced in the U.S. and is considered to be the best measurement of economic activity. Current forecasts call for a reading of approximately 2.4%, meaning that there was slightly less economic growth during the third quarter than previously thought. This would be good news for the bond market and mortgage rates, but it will likely take a larger decline to improve mortgage rates Tuesday morning.

Also worth noting is the release of the minutes from the last FOMC meeting Tuesday afternoon. Traders will be looking for any indication of the Fed’s next move regarding monetary policy. They will be released at 2:00 PM ET, therefore, any reaction will come during afternoon trading. This release is one of those that may cause some volatility in the markets after they are posted, or could be a non-factor. If they show anything surprising, we may see some movement in rates Tuesday afternoon, but it is more likely there will be little reaction since Fed Chairman Bernanke held a press conference following the most recent meeting.

There are three monthly reports scheduled for Wednesday morning. October’s Durable Goods Orders is the first and will be posted at 8:30 AM ET. This data helps us measure manufacturing strength by tracking orders for big-ticket items, but is known to be quite volatile from month-to-month. It is expected to show a 1.0% decline in new orders. A larger than expected drop would be considered good news for the bond market and mortgage rates as it would indicate manufacturing sector weakness.

The second is October’s Personal Income and Outlays data. This data measures consumers’ ability to spend and their current spending habits. This is important because consumer spending makes up two-thirds of the U.S. economy. It is expected to show that income rose 0.3% and that spending increased 0.3%. Smaller than expected readings would mean consumers had less money to spend and were spending less than thought. That would be good news for bonds and could lead to improvements in mortgage rates.

The revised November reading to the University of Michigan Index of Consumer Sentiment will be posted late Wednesday morning. It will give us a measurement of consumer willingness to spend. If confidence is rising, consumers are more apt to make a large purchase in the near future, fueling economic activity. Analysts are expecting to see little change to the preliminary reading of 64.2. Unless we see a significant variance from the forecasted reading, I don’t think this data will cause much movement in mortgage rates Wednesday.

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 Treasury Notes Tuesday and 7-year Notes on Wednesday. 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 in mortgage rates. However, strong sales usually make bonds more attractive to investors and bring more funds into the bond market. The buying of bonds that follows often translates into lower mortgage rates. Results of the sales will be posted at 1:00 PM ET auction day, so look for any reaction to come during afternoon hours.

The financial markets will be closed Thursday in observance of the Thanksgiving Day holiday. There will not be an early close Wednesday ahead of the holiday, but they will close early Friday and will reopen next Monday morning. I suspect that Friday will be a very light day in bond trading as many market participants will be home. Banks have to be open Friday, but we will likely see little change to mortgage rates that day.

This Week's Market Commentary

This week brings us the release of six monthly economic reports for the markets to digest. With very important data scheduled for release two different days and relevant data four of the five days, we will likely see a fair amount of volatility in the markets and mortgage pricing this week.

There is nothing scheduled for release Monday, leaving the bond market to movement in stocks and overseas news. As of now it appears we may see some pressure in bonds and a possible increase to mortgage rates tomorrow.


The first data is one of the most important reports of the week. The Commerce Department will give us October’s Retail Sales figures early Tuesday morning. This data measures consumer spending, which is considered extremely important to the markets because it makes up two-thirds of the U.S. economy. It is expected to show a 0.4% rise in spending, meaning consumers spent much less last month than they did in September. A larger increase would be considered negative news for bonds because large increases in spending fuels an economic recovery and raises inflation concerns in the marketplace. If Tuesday’s report reveals a smaller than expected increase in spending, bonds should react favorably, pushing mortgage rates lower. If it shows a larger than expected increase, mortgage rates will likely move higher.


Also Tuesday is the release of October’s Producer Price Index (PPI) from the Labor Department, which is one of the two key inflation readings on tap this week. The PPI measures inflationary pressures at the producer level of the economy. There are two portions of the index that are used- the overall reading and the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices. If it reveals stronger than expected readings, indicating that inflationary pressures are rising at the manufacturing level, the bond market will probably react negatively and cause mortgage rates to move higher. Analysts are expecting to see a 0.2% decline in the overall reading and a 0.1% increase in the core data.


Wednesday also has two reports scheduled that will likely influence mortgage rates. The first is October’s Consumer Price Index (CPI) at 8:30 AM ET. This index is similar to Tuesday’s PPI, except it measures inflationary pressures at the more important consumer level of the economy. We consider this report as one of the most important reports we get each month. The overall reading is expected to show no change from September’s level while the core data is expected to rise 0.1%. Weaker than expected readings would be good news for bonds and mortgage rates, while larger than forecasted increases could lead to higher mortgage rates Wednesday.


October’s Industrial Production data will be posted mid-morning Wednesday. It gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to reveal a 0.4% increase in production, indicating moderate strength in the manufacturing sector. Stronger levels of production would be considered bad news for the bond market and mortgage rates, but this data is not as important as the CPI readings are. A significant surprise in the CPI would likely make this data a non-factor in Wednesday’s mortgage pricing.


Thursday’s only monthly data is October’s Housing Starts. This data gives us an indication of housing sector strength, but usually does not have a noticeable impact on mortgage rates. I don’t expect this month’s version to be any different unless it varies greatly from analysts’ forecasts. It is expected to show a sizable decline in starts of new homes.


The final report of the week will come from the Conference Board late Friday morning when they release their Leading Economic Indicators (LEI) for October. This is a moderately important report that attempts to predict economic activity over the next three to six months. It is expected to show a 0.6% increase, meaning economic activity will rise fairly rapidly over the next couple of months. Generally speaking, this would be bad news for bonds. However, since this data is considered only moderately important, its results need to vary by a wide margin from forecasts for it to affect mortgage rates.


Overall, look for Tuesday or Wednesday to be the most important with very important reports scheduled those days. It is difficult to label any particular day as the quietest day, but Thursday is a good candidate. The key releases will be Tuesday’s Retail Sales and Wednesday’s CPI reports. They will probably determine whether rates close the week higher or lower than tomorrow’s opening levels. Since this is likely to be a fairly active week for mortgage rates, it would be prudent to maintain regular contact with your mortgage professional if still floating an interest rate.

This Week's Market Commentary

This week brings us the release of only two relevant monthly economic reports but neither of them is considered to be highly important. There are two important Treasury auctions this week that may influence mortgage rates more than the minor economic data that is scheduled.

It is also a holiday-shortened week with the bond market closed Friday in observance of the Veterans Day holiday. The stock markets will be open Friday, but bonds will not be traded meaning that many lenders will be closed.

Neither of this week’s monthly economic reports is expected to lead to noticeable changes in mortgage rates. This means that the stock markets will likely be a significant influence on bond trading and mortgage rates in addition to the two particular Treasury auctions. If the stock markets rally, we could see funds shift from bonds into stocks that potentially offer better returns, leading to higher mortgage rates. If stocks fall from current levels early in the week, bonds and mortgage shoppers should benefit.

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 of demand for 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 probably result in upward revisions to mortgage rates.

The first monthly data of the week is September’s Goods and Services Trade Balance report early Thursday morning. It helps us measure the size of the U.S. trade deficit, but usually is not a major influence on bond trading or mortgage pricing. It does affect the value of the U.S. dollar, which makes U.S. securities more attractive to international investors when the dollar is strong. This is because the securities’ proceeds are worth more when sold and converted to the investor’s domestic currency. However, its results will not likely directly lead to changes in mortgage rates. Analysts are expecting to see a $45.8 billion trade deficit.

November’s preliminary reading of the University of Michigan’s Index of Consumer Sentiment will be released late Friday morning. This index measures consumer confidence, which gives us an indication of consumer willingness to spend. It is expected to show a reading of 61.5, up from October’s final reading of 60.9. That would be considered negative news for bonds because rising sentiment means consumers are more optimistic about their own financial situations and are more likely to make large purchases in the near future. Since consumer spending makes up two-thirds of the U.S. economy, any related data is watched closely.

Overall, it is difficult to predict just how active this week will be for mortgage rates. As expected, last week brought us quite a bit of volatility in rates. This week could be very calm or could be just as active as last week was. I don’t believe the economic data on tap will be a catalyst. I think the key will be the stock markets and Wednesday’s Treasury auction. If they give us favorable results, mortgage rates will likely close the week lower than today’s opening levels.