This Week’s Market Commentary

This week brings us only four pieces of economic data that have the potential to influence mortgage rates in addition to two Treasury auctions. We are also still in earnings season, so any surprises in the corporate releases could affect stock and bond trading, leading to changes in mortgage rates.

There is nothing of significance in terms of economic releases due out Monday or Tuesday except for a couple of regional manufacturing reports that usually don’t have an impact on mortgage pricing. Look for stocks to be the biggest influence on bond trading and mortgage rates those days. Stock strength will likely translate into bond weakness and slightly higher mortgage rates. On the other hand, if the week starts off with stocks in selling mode, we could see mortgage rates move lower early this week.

June’s New Home Sales starts the week’s economic releases late Wednesday morning. This Commerce Department report gives us a measurement of housing sector strength and mortgage credit demand. Analysts are expecting it to show a small increase in sales of newly constructed homes, indicating that the new home portion of the housing sector gained some strength last month. That would be considered negative news for bonds, but since this data tracks only a small percentage of all home sales it usually has little impact on the bond market and mortgage rates unless it varies greatly from forecasts.

The Commerce Department will post June’s Durable Goods Orders at 8:30 AM ET Thursday. Current forecasts are currently calling for an increase in new orders of 1.0% from May to June. This data gives us an indication of manufacturing sector strength by tracking orders at U.S. factories for big-ticket items, or products that are expected to last three or more years. A much stronger than expected number may lead to higher mortgage rates Thursday morning because it would hint at economic strength. If it reveals a large decline in new orders, mortgage rates should drop Thursday morning. It should be noted though that this data is known to be extremely volatile from month to month, so a minor difference between forecasts and the actual reading may not move the markets or mortgage rates.

There are two economic releases scheduled to be posted Friday morning. The first is the preliminary reading of the 2nd Quarter Gross Domestic Product (GDP), which is considered to be the best indicator of economic growth or weakness. It is the sum of all goods and services produced in the U.S. and usually has a great deal of influence on the financial markets. This reading is arguably the single most important we get regularly. Current forecasts are estimating that the economy grew at a 1.2% annual rate during the second quarter. A faster pace will probably hurt bond prices, leading to higher mortgage rates Friday. But a smaller than expected reading would likely fuel a bond market rally and lead to lower mortgage pricing.

The week’s final piece of data is the revised reading to July’s University of Michigan Index of Consumer Sentiment that will help us measure consumer optimism about their own financial situations. This data is considered relevant because rising consumer confidence usually translates into higher levels of spending. This adds fuel to the economic recovery and is looked at as bad news for bonds. Friday’s release is an update to the preliminary reading we saw two weeks ago, so unless we see a drastic revision to the preliminary estimate of 72.0, I think the markets will probably shrug this news off.

Also worth mentioning are a couple of Treasury auctions that may affect bond trading and mortgage rates this week. The two most important are Wednesday’s 5-year Note and Thursday’s 7-year Note sales. Results of this week’s auctions will be posted 1:00 PM ET each day. If investor interest is strong, we can expect the broader bond market to rally and mortgage rates to move lower. However, lackluster demand could lead to bond selling and higher mortgage rates Wednesday and Thursday afternoons.

Overall, I am expecting a relatively active week in the financial and mortgage markets. We will likely see the most movement in mortgage rates the latter part of the week. The most important report of the week is Friday’s preliminary GDP reading, making it the most important day. We could see movement in rates several days, but I believe Friday will be the key day in determining if rates move higher or lower on the week.

This Week’s Market Commentary

This week brings us the release of seven 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 a very active week.

June’s Retail Sales report will be posted at 8:30 AM ET this 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 0.2% last month. A larger than expected increase in sales will likely cause bond selling and lead to higher mortgage rates because it would mean consumers are spending more than thought. That would point towards economic growth, 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 0.1% 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 along with our next event.

Late Tuesday morning, Fed Chairman Bernanke will present his semi-annual update about the economy and monetary policy before Congress. He will speak before the Senate Banking Committee Tuesday and the House Financial Services Committee Wednesday, 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 possibility of another stimulus move to help keep rates low and boost economic activity (QE3). This 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 Tuesday.

We usually see the most movement in 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.

With exception to the second day of Fed testimony, the only thing of relevance scheduled for Wednesday morning 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 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.

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 the day before gave us a recent update, I don’t think we will see any significant surprises in this report. Therefore, we will likely see little movement in mortgage rates Wednesday afternoon as a result of this report.

The National Association of Realtors will post June’s Existing Home Sales figures late Thursday morning. This report gives us a measurement of housing sector strength and mortgage credit demand. Current forecasts are calling for a moderate increase in sales from May’s totals. A drop in sales would be considered good news for bonds and mortgage rates because a weak housing sector would make it difficult for the economy to recover anytime soon. However, unless this data varies greatly from forecasts it probably will lead to only a minor change in mortgage rates.

June’s Leading Economic Indicators (LEI) will be the last piece of data this week, being posted at 10:00 AM Thursday. 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 0.2% decline, meaning that we may see a slowdown in economic activity over the next few months. A large decline in the index would be good news for the bond and mortgage markets.

Overall, Tuesday is probably the most important day of the week because it brings us the CPI and the first day of Fed testimony. Today may also be a key day due to the importance of the Retail Sales report that will be posted. In an unusual schedule, the most important reports and events are scheduled during the early part of the week.

We usually see a lighter first day or so before heading into the key reports the latter part. The week’s corporate earnings also have the potential to heavily influence bond trading and mortgage rates via stock market swings. I suspect we will see plenty of movement in the markets and mortgage rates the first couple days, so please maintain contact with your mortgage professional at least those days if still floating an interest rate.

4th of July Trivia

We know the basics of the Fourth of July, the federal holiday marking the Colonies'adoption of the Declaration of Independence on July 4, 1776, which declared independence from the Great Britain and its king. It also is known as Independence Day. This holiday goes hand in hand with fireworks, parades and swilling beer as meat sizzles on grills.

But there are some things many people do not know about the Fourth. Before the beer and hot-dog orgy get out of hand, take time to illuminate your mind about the day.

• The Fourth of July was not declared a national holiday until 1941.

• Malia Obama, George Steinbrenner, Neil Simon, Ron Kovic and Calvin Coolidge were all born on the Fourth of July.

• These events occurred on the Fourth of July: Henry David Thoreau moved into his shack on Walden Pond (1845); the U.S. air offensive against Nazi, Germany, began (1942); Beach Boys' "I Get Around" reached No. 1 on the Billboard charts (1964); Lyndon Johnson signed the Freedom of Information Act (1966).

• The stars on the original American flag were in a circle so all the Colonies would appear equal.

• Benjamin Franklin proposed the turkey as the national bird but was overruled by John Adams and Thomas Jefferson, who wanted the bald eagle.

• The musical "1776" premiered on Broadway in 1969 and ran for 1,217 performances. The production won three Tony Awards, including one for best musical.

• The number of Americans who will spend the holiday at other people's homes is approximately 41 million.

• The first official Fourth of July party was held at the White House in 1801.

• Approximately 150 million hot dogs are consumed on this day.

• The town of Patriot, Ind., has a population of 202 people.

• Presidents John Adams, Thomas Jefferson and James Monroe all died on the Fourth. Adams and Jefferson died on the same day within hours of each other in 1826.

• The percentage of American homes with an outdoor grill is 87 percent.

• The song "Yankee Doodle" was sung originally by British officers making fun of backwoods Americans.

• The amount of chicken purchased the week before the holiday is 700 million pounds.

• The Declaration of Independence was signed by 56 men from 13 colonies.

• In 1776, there were 2.5 million people living in the new nation. (Today there are 311 million.)

• There are more than 30 towns nationwide that have the word "Liberty" in their names.

This Week's Market Commentary

This week brings us the release of only three pieces of relevant economic data that may influence mortgage rates, but two of them are considered to be highly important. In addition, the Independence Day holiday falls in the middle of the week this year, so we have an early and full-day closure to work around.

Unlike many Mondays, tomorrow does bring us some very important economic data. This would be the Institute of Supply Management's (ISM) manufacturing index for June late tomorrow morning. This index measures manufacturer sentiment by surveying trade executives on current business conditions. A reading above 50 means that more surveyed executives felt business improved during the month than those who felt it had worsened. Analysts are expecting a reading of 52.2. That would indicate that more manufacturers felt business worsened from the previous month, when we saw a 53.5 reading. Good news for bonds and mortgage rates would be a weaker than expected reading, particularly something below the recessionary threshold of 50.0.

The Commerce Department will post May's Factory Orders data late Tuesday morning, which is similar to the Durable Goods Orders report that was released last week. The biggest difference is that this week's report covers both durable and non-durable goods. It usually doesn't have as much of an impact on the bond market as the durable goods data does, but can lead to changes in mortgage pricing if it varies greatly from forecasts because it measures manufacturing sector strength. Current expectations are showing a 0.4% increase in new orders from April's levels. A decline in orders would be considered good news for the bond market and could help lower mortgage rates slightly Tuesday.

The U.S. financial and mortgage markets will be closed Wednesday in observance of the Independence Day holiday. They will also close early Tuesday afternoon ahead of the holiday and will reopen Thursday morning for regular trading hours. Considering recent events from Europe, who will treat Wednesday as any other day of business, we could see bond traders sell holdings before the 2:00 PM ET close Tuesday to protect themselves over the holiday. That raises the possibility of seeing an upward revision to mortgage rates Tuesday afternoon.

The last data of the week is arguably the single most important report we see each month. The Labor Department will post June's unemployment rate, number of new payrolls added or lost and average hourly earnings early Friday morning. These are considered to be very important readings of the employment sector and can have a huge impact on the financial markets. The ideal scenario for the bond market is rising unemployment, a large decline in payrolls and no change in earnings. Weaker than expected readings would likely help boost bond prices and lower mortgage rates Friday. However, stronger than expected readings could be extremely detrimental to mortgage pricing. Analysts are expecting to see the unemployment rate remain at 8.2%, with 100,000 jobs added and a 0.2% rise in earnings.

Overall, I am expecting to see a fairly active week for the financial markets and mortgage rates. We have a small increase in rates waiting for us Monday morning due to weakness in bonds late Friday. The most important day of the week is Friday, but tomorrow could also be a key day in determining whether rates move higher or lower on the week. Furthermore, the stock markets will also heavily affect bond trading if they rally or go into a sell-off any day of the week.