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This week brings us the release of six relevant economic reports for the
bond market to digest in addition to semi-annual Congressional testimony by
Fed Chairman Bernanke. Several of the economic reports are considered to be
of high importance, meaning we will likely see more volatility in the
financial markets and mortgage pricing over the next several days. There
are also some heavily watched corporate earnings releases scheduled for the
stock markets this week that can influence bond trading and therefore,
mortgage pricing. In other words, we are likely in for another very active
week for mortgage rates.
June's Retail Sales report will be posted at 8:30 AM ET tomorrow morning.
This data is considered to be of high importance because it measures
consumer spending. Consumer spending makes up over two-thirds of the U.S.
economy, so any related data is watched closely. The Commerce Department is
expected to say that sales at retail level establishments rose 0.7% last
month. A larger than expected increase in sales will likely cause bond
selling and lead to higher mortgage rates since it would mean consumers are
spending more than thought. That would point towards economic growth and
makes a Fed bond-buying pullback in the very near future more likely,
making bonds less attractive to investors.
Tuesday has two pieces of economic data scheduled. The first is June's
Consumer Price Index (CPI) at 8:30 AM ET, which is a mirror of last week's
PPI with the exception that Tuesday's CPI measures inflation at the more
important consumer level of the economy. Analysts have forecasted a 0.3%
increase in the overall index and a 0.2% rise in the core data. The core
data is considered to be the key reading because it gives us a more stable
measure of inflation as it excludes more volatile food and energy prices.
Higher than expected readings could raise inflation fears and push mortgage
rates higher, while readings that fall short of forecasts should lead to
lower rates early Tuesday.
June's Industrial Production data is the second report of the day at 9:15
AM ET. This data measures output at U.S. factories, mines and utilities,
giving us an indication of manufacturing sector strength. It is expected to
show a 0.3% rise in production, indicating that the manufacturing sector
strengthened slightly during the month. That would basically be bad news
for bonds, however the CPI will take center stage Tuesday morning.
Wednesday morning’s only economic data is June's Housing Starts report.
This data gives us an indication of housing sector strength by tracking
construction starts of new homes, but is not considered to be of high
importance. Analysts are currently expecting to see a fairly large increase
in new starts. However, I don't see this data having much of an impact on
mortgage rates Wednesday unless it varies greatly from forecasts with so
much else scheduled that day.
Late Wednesday morning, Fed Chairman Bernanke will start his semi-annual
update about the economy and monetary policy before Congress. He will speak
before the House Financial Services Committee Wednesday and the Senate
Banking Committee Thursday, each at 10:00am ET. His testimony will be
broadcast and watched very closely. Analysts and traders will be looking
for the Fed's opinion on the status of the economy and their expectations
of future growth, inflation and unemployment concerns that will lead to the
Fed's next move. Of particular interest will be the hot button topic of
when the Fed will begin tapering, and the end of, their current $85 billion
monthly bond buying program (QE3). These topics should create a great deal
of volatility in the markets during the prepared testimony and the question
and answer session that follows. If he indicates that inflation may become
a point of concern or anything that hints at rapid economic growth, we can
expect to see the bond market fall and mortgage rates rise Wednesday. The
tapering topic has been much discussed and there has been plenty of
speculation about it that has led to a great deal of volatility recently in
the financial and mortgage markets. Therefore, I am fairly certain that if
it is not addressed in Chairman Bernanke’s prepared statement it will come
up during Q&A. And with it will probably be further volatility in the
bond market and mortgage rates.
We usually see the most movement in the markets and mortgage rates during
the first day of this testimony as the Chairman's prepared words for both
appearances are quite similar to each other, meaning that the second day of
testimony rarely gives us anything we did not hear during the first day.
The general exception is something asked or answered during the Q&A
portion of the second day's appearance.
Wednesday afternoon does bring us something that could influence the
markets and possibly mortgage pricing. The Federal Reserve will release its
Beige Book report at 2:00 PM ET Wednesday afternoon. This report is named
simply after the color of its cover, but it is considered to be important
to the Fed when determining monetary policy during their FOMC meetings. It
details economic activity and conditions by region throughout the U.S.
Since Fed Chairman Ben Bernanke's testimony to Congress hours before gave
us a recent update, I don't think we will see any significant surprises in
this report. If this is accurate, we will likely see little movement in
mortgage rates Wednesday afternoon as a result of this report.
With exception to the second day of Fed testimony, the only thing of
relevance scheduled for Thursday is June's Leading Economic Indicators (LEI)
at 10:00 AM. This Conference Board index attempts to measure economic
activity over the next three to six months. While it is not a factual
report, it still is considered to be of moderate importance to the bond
market. It is expected to show a 0.3% increase, meaning it is predicting
minor economic growth over the next few months. A large decline in the
index would be good news for the bond and mortgage markets.
Overall, look for the early part of the week to be more active than the
latter. The single most important day is probably Wednesday due to Chairman
Bernanke’s testimony, but tomorrow and Tuesday’s economic data is highly
important to the bond market and mortgage rates. I would be surprised if we
didn’t see noticeable movement in rates each of the first three days of the
week. Accordingly, please maintain contact with your mortgage professional
if still floating an interest rate and closing in the near future.
If I were considering financing/refinancing a home, I would.... Lock if my
closing was taking place within 7 days... Lock if my closing was taking
place between 8 and 20 days... Lock if my closing was taking place between
21 and 60 days... Float if my closing was taking place over 60 days from
now...
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