This week's market commentary

This Week’s Market Commentary

 

This week brings us the release of seven 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 economic relevance scheduled for release Monday or Tuesday. However, this week does have 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 Tuesday and/or Wednesday afternoon.

Wednesday’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 a decline in construction starts of new homes, hinting at a weakening 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 Wednesday’s 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 2.7% annual pace during the quarter and this month’s final revision is expected to show no change from that level. A revision higher than the 2.7% rate that is expected would be considered bad news for bonds. But since this data is quite aged at this point and 4th quarter numbers will be posted next month, I don’t think it will have much of an impact on mortgage rates Thursday.

The second report of the day comes at 10:00 AM ET when November’s Existing Home Sales figures will be posted. This release will come from the National Association of Realtors, giving us a measurement of housing sector strength and mortgage credit demand. It is expected to show an increase in sales, indicating housing sector growth. A decline in sales would be considered positive for bonds and mortgage rates because a softening housing market makes a broader economic recovery more difficult. But unless the actual readings vary greatly from forecasts, the results will probably have little or no impact on mortgage rates.

The Conference Board will release their Leading Economic Indicators (LEI) for the month of November late Thursday morning also. This release attempts to measure or predict economic activity over the next three to six months. It is expected to show a small decline, meaning that it predicts slowing economic growth over the next several months. This probably will not have much influence on bond prices or affect mortgage rates unless it shows a much stronger reading than the 0.2% decrease that is forecasted. The weaker the reading, the better the news for bonds and mortgage pricing.

The final three economic reports of the week come Friday morning and they are the more important ones scheduled. The first is November’s Personal Income and Outlays data at 8:30 AM ET. It will give us an important measurement of consumer ability to spend and current spending habits. Since consumer spending makes up over 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 0.3% 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 second 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 0.2% rise in new orders. A decline in new 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 though, so it is not unusual to see large headline numbers on this report.

The last economic report will be released 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 downward revision from the preliminary reading of 74.5. 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 74.0 that is forecasted would be negative for bonds and mortgage rates.

Overall, I am expecting to see little movement in the markets and mortgage rates the first couple days. As the week progresses and we get to the economic releases, we should see more activity in the markets and changes to mortgage pricing. The least important day for mortgage rates will likely be Monday 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. The Fiscal Cliff issue will also be a topic of discussion and trading in the markets as we get closer to the deadline. Therefore, please maintain contact with your mortgage professional if still floating an interest rate, especially the latter part of the week.