This Week’s Market Commentary

May 14, 2012

This week brings us the release of five pieces of relevant economic news in addition to the minutes from the most recent FOMC meeting. Two of the economic reports are considered to be highly important to the markets and mortgage rates, while the others carry enough significance to influence mortgage rates if they show a wide variance from forecasts.

The first important piece of data this week is April’s Retail Sales, which will be released at 8:30 AM ET Tuesday. It is an extremely important report for the financial markets since it measures consumer spending. Consumer spending makes up over two-thirds of the U.S. economy, so this data can have a pretty significant impact on the markets. Current forecasts are calling for a 0.2% increase in sales from March to April.

A weaker than expected level of sales should push bond prices higher and mortgage rates lower Tuesday morning as it would signal that economic activity may not be as strong as thought. However, a larger increase could fuel fears of economic growth that would lead to stock buying and bond selling that would push mortgage rates higher.

April’s Consumer Price Index (CPI) will also be posted at 8:30 AM ET Tuesday. It is similar to last week’s PPI report, but measures inflationary pressures at the more important consumer level of the economy. These results will be watched closely and could lead to significant volatility in the bond market and mortgage pricing if they show any surprises. Current forecasts are calling for no change in the overall index and a 0.2% rise in the core data reading. The core data is the more important of the two readings because it excludes more volatile food and energy prices, giving analysts a more stable and reliable measurement of inflation.
Wednesday has three reports scheduled, starting with April’s Housing Starts at 8:30 AM ET. This data measures housing sector strength and mortgage credit demand by tracking newly issued permits and actual starts of new home construction. It is expected to show an increase in new starts from March’s readings. Since this report is not considered to be of high importance to the bond market, it likely will have little impact on mortgage rates unless it varies greatly from forecasts.

The second report of the day is April’s Industrial Production at 9:15 AM ET. It measures manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to show a 0.5% increase in production, indicating that manufacturing activity is growing. A smaller than expected increase in output would be good news for the bond market and mortgage rates because it would indicate that the manufacturing sector is not as strong as thought. This report is just a bit more important to the markets as the earlier housing report, so they both will likely need to show unexpected strength or weakness for them to cause movement in mortgage rates.

Wednesday’s third release is the minutes of the last FOMC meeting. Market participants will be looking for how Fed members voted during the last meeting and any comments about inflation concerns in the economy and economic growth. The goal is to form opinions about the Fed being able to wait until late 2014 to make a move to either boost economic activity or slow growth to ease inflation concerns. Since the minutes will be released at 2:00 PM ET, if there is a market reaction to them it will be evident during afternoon trading Wednesday.

The last data of the week comes late Thursday morning with the release of April’s Leading Economic Indicators (LEI). This Conference Board report attempts to measure economic activity over the next three to six months. It is expected to show a 0.2% increase from March’s reading, meaning that economic activity is likely to strengthen slightly over the next few months. A decline would be good news for the bond market and mortgage rates, while an increase could cause mortgage rates to inch higher Thursday.

Overall, it looks like we may see the most activity Tuesday with the two most important reports of the week scheduled. Wednesday could also be active while Friday is the best candidate for calmest day unless something unexpected happens. However, sizable gains or losses in the major stock indexes could influence bonds and mortgage rates more than a good part of this week’s economic data can. Therefore, please maintain contact with your mortgage professional if still floating an interest rate.

This Week’s Market Commentary

May 7, 2012

There are only three pieces of relevant economic data scheduled for release this week that may affect mortgage rates, in addition to two important Treasury auctions. The two most important reports will be posted Friday, meaning the markets will have to rely on factors other than economic news for direction most of the week.

There is no relevant economic data due until Thursday, so expect the stock markets to be a big influence on bond trading and mortgage rates until then.

The Treasury will hold a 10-year Note sale Wednesday and a 30-year Bond sale Thursday. Results of the auctions will be posted at 1:00 PM ET each day. If they are met with a strong demand from investors, we could see bond prices rise enough during afternoon trading to cause downward revisions to mortgage rates. However, lackluster bidding in the sale, meaning longer-term securities are losing their appeal, could lead to higher mortgage pricing those afternoons.

March’s Goods and Services Trade Balance report will be released early Thursday morning. This report gives us the size of the U.S. trade deficit but likely will not have much of an impact on the bond market or mortgage pricing. It is expected to show a $49.9 billion trade deficit, but it is the least important of this week’s data and likely will have little influence on Thursday’s mortgage rates.

Friday has the remaining two reports. April’s Producer Price Index (PPI) is the first at 8:30 AM ET. It helps us measure inflationary pressures at the producer level of the economy. If this report reveals weaker than expected readings, indicating inflation is not a concern at the producer level, we should see the bond market rally. The overall index is expected to show no change, while the core data that excludes more volatile food and energy prices has been forecasted to rise 0.2%. A decline in the core data would be ideal for mortgage shoppers because inflation is the number one nemesis for long-term securities such as mortgage-related bonds.

The last report of the week is May’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment. This index measures consumer willingness to spend, which relates to consumer spending. If consumers are more confident of their own financial situations, they are more apt to make large purchases in the near future. This report usually has a moderate impact on the financial markets though, because it is not exactly factual data. It is expected to show a reading of 76.2, which would be a small decline from last month’s final reading. If it shows a large decline in consumer confidence, bond prices could rise and mortgage rates would move slightly lower because waning confidence means consumers are less apt to make a large purchase in the near future. That is assuming the PPI does not give us a significant surprise though. The PPI is much more important to the bond market than the sentiment index is, so look for it to be the biggest influence on Friday’s mortgage pricing.

Overall, it likely will be a moderately active week for mortgage rates. Besides the week’s economic news, look for the stock markets to be a major influence on trading. The most important day of the week is Friday with the PPI report on the agenda, but Wednesday’s 10-year Note auction could also heavily sway bond trading. It appears we will likely see the most movement in mortgage rates the latter part of the week unless the stock markets post sizable gains or losses the first part.