This Week’s Market Commentary

This week is packed with economic data with 10 pieces set for release, including two that are considered to be highly important to the markets and mortgage rates. November’s manufacturing index from the Institute for Supply Management (ISM) is the first, coming at 10:00 AM ET Monday. This index measures manufacturer sentiment and can have a considerable impact on the financial markets and mortgage rates. Current forecasts call for a decline in sentiment from October to November. October’s reading was previously announced as 56.4. A weaker reading than the expected 55.5 would be good news for the bond market and mortgage rates. A reading above 50 means that more surveyed business 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 broader economic growth less likely.
There is nothing of importance scheduled for Tuesday, but Wednesday has three reports starting with October’s Goods and Services Trade Balance at 8:30 AM ET. 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 actually the week’s least important monthly report. It is expected to show a $40.5 billion trade deficit, which would be a decline from September. Unless it varies greatly from forecasts, I don’t expect this data to affect mortgage pricing Wednesday.
Next on tap is two months’ worth of new home sales data from the Commerce Department. At 10:00 AM ET Wednesday we will get September’s and October’s New Home Sales reports that will give us an indication of housing sector strength. September’s data was delayed during the government shutdown, so we will get both reports this week. This data is not considered to be highly important because new home sales make up only a small portion of all home sold in the U.S. Analysts are expecting to see an increase in September’s sales but a decline in October’s sales. Ideally, bond traders prefer to see declining sales as it would point towards weakness in the housing sector. However, unless there is a significant surprise in the results, the data will probably have only a modest impact on Wednesday’s mortgage rates.
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 Fed region. That information is relied upon heavily during the FOMC meetings when determining monetary policy, so its results can influence bond trading and mortgage rates if it shows any noticeable changes from the last update. More times than not though, this report will not influence the markets enough to cause intra-day changes to mortgage rates, but the potential to do so does exist.
The first of two revisions to the 3rd Quarter Gross Domestic Product (GDP) will be posted early Thursday morning. It is expected to show an upward revision from last month’s preliminary reading of a 2.8% annual rate of growth. 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 3.0% rate of growth, meaning that there was a little more economic activity during the third quarter than previously thought. This would be bad news for mortgage rates because solid economic growth makes long-term securities such as mortgage-related bonds less appealing to investors. A modest increase shouldn’t be too detrimental to rates since it is expected. On the other hand, a sizable revision upward or downward could significantly influence the financial and mortgage markets.
October’s Factory Orders will be posted late Thursday morning. This report is similar to the Durable Goods Orders report that was released last week, 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 it does carry enough importance to impact mortgage rates if it shows a sizable variance from forecasts. Analysts are expecting to see a 1.0% decline in new orders. The larger decline, the better the news for bond prices and mortgage rates because it would signal manufacturing sector weakness. If we do see a much larger drop in new orders, the bond market could thrive, improving mortgage rates Thursday morning.
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, so its impact on the markets and mortgage rates is often significant. 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 a 0.1% decline in the unemployment rate to 7.2% while 185,000 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 October’s 7.3%, a smaller increase in payrolls (or a decline) 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 much lower Friday. However, stronger than expected readings would likely fuel a stock rally and bond sell-off that would lead to higher mortgage rates.
October’s Personal Income and Outlays data is scheduled for early Friday morning also. This data measures consumers’ ability to spend and their current spending habits. This is important because consumer spending makes up over two-thirds of the U.S. economy. It is expected to show that income rose 0.3% and that spending increased 0.3%. Weaker than expected readings would mean consumers had less money to spend and were spending less than thought. That would be theoretically favorable news for bonds and mortgage pricing, although the Employment data will be the focus of Friday’s morning trading.
The final report of the week is the release of December’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment late Friday morning. This index measures consumer willingness to spend and can usually have enough of an impact on the financial markets to change mortgage rates slightly if it shows a sizable miss from forecasts. 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 over two-thirds of the economy, any related data is watched closely. Friday’s release is expected to show a reading of 75.4, which would be a small rise from last month’s final reading of 75.1. A large decline in confidence would be considered good news for the bond market and mortgage rates.
Overall, look for Friday to be the most active day of the week but we should see noticeable movement in rates Monday also. And in between those days there is plenty of data being posted that may move mortgage rates. The best candidate for calmest day is Tuesday with nothing in terms of relevant economic data set for release. With so much on tap this week, there is plenty of opportunity to see large swings in the major market indexes and mortgage rates. Accordingly, it would be prudent to maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.