Weekly market commentary

This Week’s Market Commentary

 

This week has seven economic reports scheduled for release that may have an impact on mortgage rates. The most important data is scheduled later in the week, but there is data or speeches from Fed members set for every day making it likely that we will see an active week for mortgage rates with a good possibility of intra-day revisions multiple days.
Monday kicks off the week’s schedule with the release of two months of Factory Orders data. We will get results for August and September instead of the traditional single month due to delays caused by the government shutdown. 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 0.3% rise in August and a 1.8% increase in new orders in September. I don’t believe that August’s data will have much of an impact on Monday’s mortgage rates. This report is normally considered to be only moderately important and August data is a couple months old now. Basically, smaller than forecasted increases would be good news for the bond market and mortgage rates while bigger increases would be bad news and could contribute to higher mortgage pricing since it would indicate economic strength.
There is nothing of relevance scheduled for release Tuesday and Wednesday’s sole report is not considered to be highly important. Wednesday’s data will come from the Conference Board, who will post their Leading Economic Indicators (LEI) for September at 10:00 AM ET. This report attempts to predict economic activity over the next three to six months. It is expected to show a 0.6% rise, indicating that the overall economy is likely to grow in the immediate future. Good news for the bond and mortgage markets will be a much smaller increase than forecasts. However, this data is not known to be highly influential on rates, so it will likely take a large variance from forecasts for it to affect Wednesday’s mortgage pricing.
Thursday starts the big news for the week. The preliminary reading of the 3rd Quarter Gross Domestic Product (GDP) will be released at 8:30 AM ET Thursday 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. Thursday’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 slower pace than the 2nd quarter’s 2.5% rate. 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 Thursday morning.
The first of Friday’s three reports is another key release with the Labor Department posting October’s Employment data. It is arguably the single most important monthly report since it is comprised of many statistics and readings, including 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 7.3%, an increase in payrolls of approximately 100,000 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, especially after the government shutdown, we could see mortgage rates spike noticeably higher Friday morning.
September’s Personal Income and Outlays report will also be posted early Friday morning. 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 0.2% increase in income and a 0.2% rise in spending. Smaller than expected increases in both readings would be good news for the bond market and mortgage pricing, but the Employment report will take center stage Friday morning.
The week’s economic calendar closes late Friday morning when November’s preliminary reading of the University of Michigan’s Index of Consumer Sentiment is posted. This index measures consumer confidence, which gives us an indication of consumer willingness to spend. It is expected to show a reading of 75.3, up from October’s final reading of 73.2. 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 over two-thirds of the U.S. economy, any related data is watched closely. The lower the reading, the better the news it is for mortgage shoppers.
There are also quite a few speaking engagements by Fed members this week that are worth watching, including Chairman Bernanke. The topics of some of these speeches, which are scheduled each day this week, appear to be directly related to the economy and monetary policy. This means that their words will be watched closely by market participants and can be highly influential on the financial and mortgage markets.
Overall, I believe the most important days of the week for mortgage rates are Thursday and Friday. This is when we will likely see the most movement in rates due to the importance of the data those days. Tuesday appears to be the best candidate for lightest day with nothing scheduled, but we should be alert each day for unexpected news or swings in trading that could cause mortgage rates to jump. The benchmark 10-year Treasury Note yield closed at 2.62% Friday, which could mean there is more room for it to rise before coming down if it does not fall below 2.60% right away. Therefore, please proceed cautiously if still floating an interest rate and closing in the next month