This weeks market commentary

This Week’s Market Commentary

 

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.