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This Week’s Market Commentary

This week is extremely light in terms of the number of economic reports that are scheduled for release that may influence mortgage rates. In fact, there are only two monthly or quarterly reports and neither is considered to be highly important to the markets. There are several Treasury auctions scheduled during the week, but only two of them are worth watching. This makes it likely that stock movement will heavily influence bond trading and mortgage rates several days.
There are two public speaking engagements by Fed Chairman Bernanke, neither of which is likely to cause volatility in the markets or mortgage pricing. The first is Monday morning when he will appear via prerecorded video at a conference in Boston. He is also hosting a town hall meeting on education Tuesday afternoon in Washington D.C. and will answer questions from people in attendance and via video feed. Both of these are considered to be of very low importance and have little chance to causing any havoc in the markets.
The first economic data of the week is Employee Productivity and Costs data for the second quarter that will be released early Wednesday morning. It will give us an indication of employee output per hour. High levels of productivity are believed to allow the economy to grow without fears of inflation. I don’t see this being a big mover of mortgage pricing, but since it is the only data of the day in a week with little else scheduled, it may influence rates slightly during morning trading. Analysts are currently expecting to see an increase in productivity of 1.5% and a 0.4% rise in labor costs. A stronger than expected productivity reading and a smaller than expected increase in costs could help improve bonds, leading to lower mortgage rates Wednesday.
June’s Trade Balance report will be released early Thursday morning. It gives us the size of the U.S. trade deficit but is the week’s least important report and likely will have little impact on the bond market and mortgage rates. Analysts are expecting to see a $47.5 billion deficit, but it will take a wide variance to directly influence mortgage pricing.
Also worth noting are two important Treasury auctions this week. The sale of 10-year Notes will be held Wednesday while 30-year Bonds will be sold Thursday. We often see some weakness in bonds ahead of the sales as the firms participating prepare for them. However, as long as they are met with decent demand from investors, the firms usually buy them back. This tends to help recover any presale losses. But, if the sales are met with a lackluster interest from investors- particularly international buyers, the bond market may move lower after the results are posted and mortgage rates may move higher. Those results will be announced at 1:00 PM each sale day.
Overall, it is difficult to label one particular day as the most important with so little to choose from. Monday may be a little interesting considering the size of Friday’s stock rally that pushed the Dow higher by 217 points, which drove bond prices lower. We would not be surprised to see the negative tone extend into tomorrow’s bond trading and mortgage rates, especially if stocks open higher. We never recommend straying far from your mortgage professional if still floating an interest rate, however, the markets and mortgage pricing are likely going to be much calmer than recent weeks.