This Week's Market Commentary

This week brings us the release of only two pieces of monthly economic data that are considered relevant to mortgage rates. It is a holiday-shortened week with the financial markets closing early tomorrow and remaining closed Tuesday in observance of Christmas. I suspect tomorrow will be a fairly thin day of trading with many traders home for the holiday already.

There is nothing of relevance scheduled for release Monday, meaning we should see a fairly calm day in the mortgage market unless something unexpected happens. That will be the same situation Wednesday also, although there are some minor private sector and regional manufacturing reports set to be posted that could help nudge trading in one direction or the other. It is likely to be a fairly quiet day also since none of the releases are considered top-tier reports.

The only two relevant monthly economic reports of the week come Thursday morning. The first is November’s New Home Sales data that will give us a measurement of housing sector strength and mortgage credit demand. It is the sister report of last week’s Existing Home Sales report, but covers a much smaller portion of the housing market than that one did. A weakening housing sector is considered good news for the bond market and mortgage rates because a broader economic recovery is less likely in the immediate future. Since bonds tend to thrive in weaker economic conditions, a large decline would be considered favorable for bond prices and mortgage rates. Current forecasts are calling for an increase in sales of newly constructed homes. Ideally, we would like to see a decline in sales.

The Conference Board will post their Consumer Confidence Index (CCI) for December late Thursday morning. This is a fairly important release because it measures consumer willingness to spend. If consumers are more confident about their personal financial situations, they are more apt to make large purchases. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is watched closely by market participants and can have a significant influence on mortgage rate direction. Current forecasts are calling for an increase in confidence from November's reading of 56.0. Analysts are expecting tomorrow's release to show a reading of 70.0, meaning consumers felt worse about their own financial situation than they did in November. The lower the reading, the better the news it is for bonds and mortgage pricing.

Overall, we will probably see little change in mortgage rates until possibly Thursday morning when we get to the relevant economic data. Yet what could have the biggest influence on the market and mortgage rates this week is any progress on Fiscal Cliff negotiations. Any bit of news that hints at a possible compromise and resolution should have a positive impact on stocks, hurting bond prices and mortgage rates. However, more of the recent talk that indicates no compromise is near could drive stocks lower, boosting bond prices that lead to improvements in mortgage rates. With the holiday taking the first two days of the week, I believe we won’t see much movement in rates until Thursday at the earliest. After that, things should heat up a bit. 

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 tomorrow 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.

This Week's Market Commentary

This week brings us the release of five economic reports that are considered relevant to mortgage rates, but only four of them are of concern. In addition to them, we also have the year’s last FOMC meeting and other related Fed events and two Treasury auctions that have the potential to influence mortgage pricing. The biggest news comes the middle and late days of the week, so we should see more movement in rates as the week progresses.

There is nothing of relevance scheduled for tomorrow. This means we can expect the stock markets to drive bond trading and mortgage rates again. If the major stock indexes open the week with gains tomorrow morning, bonds may move lower, pushing mortgage rates higher. But a weak open in stocks could lead to slightly lower mortgage rates tomorrow. We could also see traders position themselves ahead of the week's agenda, so even though there is nothing concerning on the calendar, we could see mortgage rates change.

October's Goods and Services Trade Balance report will be posted early Tuesday morning. This report gives us the size of the U.S. trade deficit, but it is considered to be of low importance to mortgage rates. It is actually the week’s least important monthly report. It is expected to show a $42.7 billion trade deficit, which would be an increase from September. Unless it varies greatly from forecasts, I don't expect this data to affect mortgage pricing Tuesday.

Wednesday has no important economic data scheduled for release but it does have the 12:30 PM adjournment of the FOMC meeting that began Tuesday. It is widely expected that Mr. Bernanke and company will not change key short-term interest rates at this meeting, but traders and analysts are anxious to get the Fed’s current economic forecasts. Also worth noting is that the meeting is ending earlier than the traditional 2:15 PM because it is one of the meetings that will be followed by a press conference hosted by Fed Chairman Bernanke. The meeting will adjourn at 12:30 PM, forecasts will be posted at 2:00 PM and the press conference will begin at 2:15 PM. It is fairly safe to assume that all of that will lead to afternoon volatility in the markets and mortgage rates Wednesday.

There are Treasury auctions scheduled for several days this week, but the two important ones are the 10-year Note sale Wednesday and the 30-year Bond sale Thursday. Wednesday's auction is the more important of the two and will likely have a bigger influence on mortgage rates. Results of Wednesday’s sale will be posted at 11:30 AM ET due to the FOMC events while Thursday’s will be at the usual 1:00 PM. If they were met with a strong demand from investors, particularly international buyers, we should see strength in bonds and improvements to mortgage pricing those days shortly after. On the other hand, a weak interest in the auctions could lead to upward revisions to mortgage rates.

Thursday has two important economic reports scheduled for release, both at 8:30 AM ET. November's Retail Sales report is one of them. This report will give us a key measurement of consumer spending by tracking sales at retail level establishments. This data is highly important to the markets because consumer spending makes up over two-thirds of the U.S. economy. Rapidly rising consumer spending raises the possibility of seeing solid economic growth. Since long-term securities such as mortgage bonds are usually more appealing to investors during weaker economic conditions, a large increase in retail sales will likely drive bond prices lower and mortgage rates higher Thursday. Current forecasts are calling for an increase of 0.4% in November's sales.

November's Producer Price Index (PPI) will also be posted early Thursday morning. It measures inflationary pressures at the producer level of the economy. There are two portions of the index that are used- the overall reading and the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices, giving a more stable reading for analysts to consider. If Thursday's release reveals stronger than expected readings, indicating that inflationary pressures are rising, the bond market will probably react negatively and drive mortgage rates higher. If we see in-line or weaker than expected numbers, the bond market should respond well and mortgage rates should fall. Current forecasts are showing a 0.5% decline in the overall index and a 0.1% rise in the core data.

Friday has more highly important data when November's Consumer Price Index (CPI) is posted at 8:30 AM ET. It is similar to Thursday's Producer Price Index, except it tracks inflationary pressures at the more important consumer level of the economy. Current forecasts call for a decline of 0.2% in the overall index and a 0.1% rise in the core data reading. This data is one of the most watched inflation indexes, which is extremely important to long-term securities such as mortgage related bonds. Rising inflation erodes the value of a bond's future fixed interest payments, making them less appealing to investors. That translates into falling bond prices and rising mortgage rates. Therefore, weak readings would be favorable for the bond market and mortgage shoppers.

The week closes with November's Industrial Production mid-morning Friday. This report gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. Analysts are expecting it to show a 0.4% increase in output, indicating modest manufacturing growth. A smaller than expected rise would be good news for bonds, while a stronger reading may result in slightly higher mortgage pricing. However, the CPI release is much more important to the markets than this data.

Overall, there is a high probability that we will see an active week in the financial and mortgage markets. Wednesday will probably be the most important day due mostly to the Fed events, but Thursday has two very important economic reports so we may see plenty of volatility that day also. Tomorrow is an easy choice for least important, however, we could still see an extension of Friday’s trading affect mortgage rates tomorrow also. I still believe we are due for a stock pullback that will cause a flight-to-safety in bonds, hence the optimistic approach towards interest rates. On the other hand, with so much on tap this week and a strong likelihood of several active days in the markets, it is strongly recommended that you maintain contact with your mortgage professional if still floating an interest rate.

This Week's Market Commentary

This week has five pieces of economic data set for release, including two that are considered to be highly important to the markets and mortgage rates. November's manufacturing index from the Institute for Supply Management (ISM) is the first, coming at 10:00 AM ET Monday. This index measures manufacturer sentiment and can have a considerable impact on the financial markets and mortgage rates. Current forecasts call for a small decline in sentiment from October to November. October's reading was previously announced as 51.7. A weaker reading than the expected 51.2 would be good news for the bond market and mortgage rates. A reading above 50 means that more surveyed trade executives felt business improved during the month than those who felt it had worsened. The lower the reading the better the news for bonds because waning sentiment indicates a slowing manufacturing sector and makes a broader economic recovery less likely.

The next piece of data that we need to be concerned with comes early Wednesday morning when revised 3rd Quarter Productivity numbers are posted. This index is expected to show an upward revision from the preliminary reading of worker productivity. Higher levels of productivity are thought to allow the economy to expand without inflationary pressures rising. This is good news for the bond market because economic growth itself isn't necessarily bad for the bond market. It's the conditions around an expanding economy, such as inflation, that hurt bond prices and mortgage rates. Current forecasts are calling for an annual rate of 2.7%, up from the previous estimate of 1.9%. The higher the reading, the better the news for the bond market.

October's Factory Orders will be posted late Wednesday morning. This report is similar to the Durable Goods Orders report that was released last week, except this one includes manufacturing orders for both durable and non-durable goods. This data usually isn't a major influence on bond trading, but it does carry enough importance to impact mortgage rates if it shows a sizable variance from forecasts. Analysts are expecting to see a slight decline in new orders. The larger decline, the better the news for bond prices and mortgage rates because it would signal manufacturing sector weakness. If we do see a sizable drop in new orders, the bond market could thrive, improving mortgage rates Wednesday morning.

There is no other relevant economic news scheduled for release until Friday morning. There are a couple of potentially relevant foreign central bank announcements early Thursday morning that we will be watching. Announcements from the Bank of England and the European Central Bank, which are similar to our FOMC meetings, could influence the global markets including ours. The impact will probably be minimal, but we do need to keep an eye on those announcements early Thursday.

The biggest news of the week comes Friday morning when the Labor Department posts November's Employment figures. This is arguably the most important monthly report we see. It is comprised of many statistics and readings, but the most watched ones are the unemployment rate, the number of news jobs added or lost during the month and average hourly earnings. Current forecasts call for a 0.1% increase in the unemployment rate to 8.0% while 90,000 new jobs were added to the economy. The income reading is forecasted to show an increase of 0.2%. An ideal scenario for mortgage shoppers would be a higher unemployment rate than 8.0%, a smaller increase in payrolls (or a decline) and no change in the earnings reading. If we are fortunate enough to hit the trifecta with all three, we should see the stock markets fall, bond prices rise and mortgage rates move lower Friday. However, stronger than expected readings would likely fuel a stock rally and bond sell-off that would lead to higher mortgage rates.

Also Friday is the release of December's preliminary reading to the University of Michigan's Index of Consumer Sentiment. This index measures consumer willingness to spend and can usually have enough of an impact on the financial markets to change mortgage rates slightly. Consumer sentiment or confidence is tracked because the more comfortable consumers are about their own financial situations, the more likely they are to make a large purchase in the near future. Since consumer spending makes up over two-thirds of the economy, any related data is watched closely. Friday's release is expected to show a reading of 82.4, which would be a small decline from last month's final reading of 82.7. A larger decline in confidence would be considered good news for the bond market and mortgage rates.

Overall, look for Friday to be the key day of the week simply due to the fact we are getting the monthly Employment report that day. Monday's ISM report is also considered highly important, but a level below the Employment report. Still it could be a market mover and set the tone for the markets until Friday’s data is posted. The middle part of the week is the lightest, which is a change from most weeks. I would pick Tuesday to be the least important day of the week, however, any day can bring movement in mortgage rates if the stock markets make a sizable move or something unexpected happens here or in the geopolitical arena. Therefore, I would recommend maintaining contact with your mortgage professional if still floating an interest rate and closing in the near future.