This Week's Market Commentary

This week is packed with economic reports and other events that are relevant to bond trading and mortgage rates. There are eight pieces of monthly or quarterly economic data scheduled with at least one being posted each day. In addition to those reports, there is also a two-day FOMC meeting and a couple of Treasury auctions that have the potential to affect bond trading enough to slightly move rates.

The first report of the week is December's Durable Goods Orders at 8:30 AM ET Monday morning. This data helps us measure manufacturing strength by tracking new orders at U.S. factories for products that are expected to last three or more years, also known as big-ticket items. The data is known to be quite volatile from month- to-month, but is currently expected to show an increase in orders of approximately 1.6%. A smaller than expected increase would be considered good news for bonds and mortgage rates, but a slight variance likely will have little impact on the day's mortgage pricing.

Tuesday also has only one report scheduled for release that is relevant to mortgage rates. That would be January's Consumer Confidence Index (CCI) at 10:00 AM ET. This report is considered to be of moderate to high importance to the bond market and therefore can move mortgage rates if it shows any surprises. It is an indicator of consumer sentiment, which is important because waning confidence in their own financial situations usually means that consumers are less willing to make large purchases in the near future. Because consumer spending makes up over two-thirds of the U.S. economy, market participants are very attentive to related data. Analysts are expecting to see little change from December's reading, indicating consumer confidence was flat. A reading much smaller than the expected 65.1 would be ideal for the bond market and mortgage rates. A higher reading than forecasts would hint that consumers are more likely to spend in the immediate future, fueling economic growth and possibly pushing mortgage pricing higher Tuesday.

Wednesday brings us one of the most important economic reports we regularly see in addition to the FOMC meeting results. The 4th Quarter Gross Domestic Product (GDP) will be posted early Wednesday morning. This data is so important because it is considered to be the best measurement of economic activity. The GDP itself is the total sum of all goods and services produced in the United States. Its results usually have a major impact on the financial markets and can cause significant changes in mortgage rates. There are three readings to each quarter's activity, each released approximately one month apart. Last quarter’s first reading, which usually carries the most significance, is expected to be an increase of 1.0%. A noticeably weaker reading would be great news for the bond market, questioning the pace of the economic recovery. That would likely fuel stock selling and a rally in bonds that would push mortgage rates lower Wednesday morning. However, a stronger than expected reading should fuel bond selling and lead to higher mortgage rates.

This year's first FOMC meeting that begins Tuesday will adjourn Wednesday at 2:15 PM ET. It is expected to yield no change to short-term interest rates, but as is often the case, traders will be looking for any indication of the Fed's change in sentiment about the economy and when a potential change to short-term rates will be made or an adjustment to their current stimulus programs. There has been some rumors and talk of the Fed possibly ending or easing their bond buying programs earlier than previously thought. That is a topic that traders will be looking for in the post-meeting statement and could cause volatility in the markets during afternoon trading if it is addressed by Mr. Bernanke and friends.

Thursday morning is the first day of the week with multiple economic reports scheduled that are expected to influence mortgage rates. The first is December's Personal Income and Outlays data early Thursday morning, which gives us an indication of consumer ability to spend and current spending habits. As with Tuesday’s CCI, this report is important because it is related to consumer spending. Current forecasts call for an increase in income of 0.7% meaning consumers had more money to spend in December than they did on November. The spending reading is expected to rise 0.3%, indicating consumers spent a little more last month than the previous month. Larger increases would be good news for the stock markets and could hurt bond prices, driving mortgage rates higher. Smaller than expected increases would be considered good news for the bond market and mortgage rates.

The second release of the day will be the 4th Quarter Employment Cost Index (ECI). This index measures employer costs for employee wages and benefits, giving us an indication of the threat of wage inflation. If wages are rising, consumers have more money to spend and businesses usually need to charge more for their products and services. The report is considered moderately important and usually has more of an effect on the bond market than the stock markets. Current forecasts are showing an increase of 0.5%. A lower than expected reading would be favorable to bonds and mortgage rates Thursday, but unless we see a large variance from forecasts I am not expecting this report to cause much movement in rates.

And that leaves Friday. The week closes with the final three pieces of economic data on this week’s calendar, two of which are considered extremely important to the financial and mortgage markets. It begins with the release of the almighty monthly Employment report at 8:30 AM ET. The Labor Department will post January's Employment data, giving us the U.S. unemployment rate and the number of jobs added or lost during the month among other related statistics. Analysts are expecting to see the unemployment rate slip 0.1% to 7.7% and that approximately 183,000 new jobs were added to the economy. An increase in unemployment and a much smaller increase in payrolls would be great news for the bond market. It would probably create a bond rally, leading to lower mortgage rates Friday morning. However, if Friday's report reveals stronger than expected results, indicating a stronger than thought employment sector, we can expect to see stocks rally and mortgage rates move noticeably higher.

The second report of the day is the revised reading to the University of Michigan's Index of Consumer Sentiment just before 10:00 AM ET Friday. This index is another measurement of consumer confidence that is thought to indicate consumer willingness to spend. I don't see this data having much of an impact on the markets or mortgage rates due to the importance day’s other reports.

Friday's final report is also extremely important to the markets. It will be released at 10:00 AM when the Institute of Supply Management (ISM) posts their manufacturing index for January. This index tracks manufacturer sentiment by rating surveyed trade executives' opinions of business conditions. It is usually the first economic data released each month and is one of the very important reports we get each month. Current forecasts are calling for a reading in the neighborhood of 50.5, which would be a slight decline from December's reading. The lower the reading, the better the news for the bond market and mortgage rates because weak sentiment indicates a slowing manufacturing sector.

And if we didn't have enough to watch already, there are two relatively important Treasury auctions for the markets to digest. The Fed will auction 5-year and 7-year Treasury Notes Tuesday and Wednesday, respectively. If they are met with a strong demand from investors, the broader bond market may improve during afternoon hours those days. If the sales draw a lackluster interest, they could lead to bond selling and higher mortgage rates mid-afternoon Tuesday and Wednesday.

Overall, it is difficult to say exactly which day will probably have the most movement in mortgage rates, but Wednesday and Friday are certainly the best candidates. Wednesday has the GDP and FOMC meeting while Friday’s agenda includes two highly important releases in the Employment and ISM reports. Tomorrow, Tuesday and Thursday are all equally important for mortgage rates. Mondays are often calmer than other days many weeks. However, with last Friday’s bond selling extending into the close of trading, you have approximately a .250 of a discount point increase in rates waiting before tomorrow’s open if your lender did not revise pricing higher Friday afternoon. That, coupled with a fairly important manufacturing report being released means we can’t automatically label it as the least important day by default. There is little doubt that we will see plenty of volatility in the financial markets and mortgage rates the next five days, so I highly recommend maintaining contact with your mortgage professional if still floating an interest rate. 

This Week's Market Commentary

This week beings us the release of seven economic reports that are relevant to mortgage rates, with some of the data considered to be highly important to the financial and mortgage markets. There is nothing scheduled for release during trading hours Monday that may influence mortgage rates. However, Fed Chairman Bernanke will speak at the University of Michigan at 4:30 PM ET. The topic will be the economy and monetary policy, so there is a decent possibility of his words affecting the markets. But since the event is considered after-hours, we won’t be able to see whatever is said influence mortgage pricing until Tuesday morning.

The first economic reports of the week will be posted early Tuesday morning. The Commerce Department will release December's Retail Sales data at 8:30 AM ET. This Commerce Department report measures consumer spending by tracking sales at retail level establishments in the U.S. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is watched closely. Current forecasts are calling for an increase in sales of approximately 0.3%. A smaller than expected increase in sales would be good news for bonds and mortgage rates because it would hint at weaker than thought economic growth.

Tuesday’s second report is the Labor Department's Producer Price Index (PPI), also at 8:30 AM ET. The PPI is important to the markets and mortgage rates because it measures inflationary pressures at the producer level of the economy. Analysts are expecting to see no change in the overall reading and a 0.2% increase in the more important core reading that excludes volatile food and energy prices. A larger than expected increase in the core reading could mean higher mortgage rates Tuesday since inflation is the number one nemesis of the bond market. It erodes the value of a bond's future fixed interest payments, making them less attractive to investors. Accordingly, they are sold at a discount to offset the drop in value, which drives their yields higher. And since mortgage rates follow bond yields, rising inflation usually translates into higher interest rates for borrowers.

Wednesday also has multiple reports scheduled for release. The first and most important is December's Consumer Price Index (CPI) at 8:30 AM. This is one of the most important monthly reports that we see each month since it measures inflationary pressures at the consumer level of the economy. As with the PPI, there are two readings in the release. The overall index is expected to remain unchanged while the core data is expected to increase 0.1%. Weaker than expected readings would be favorable news and should lead to bond strength and lower mortgage rates Wednesday morning.

December's Industrial Production report is also on Wednesday's agenda with a release time of 9:15 AM ET. This data measures output at U.S. factories, mines and utilities, giving us an indication of manufacturing sector strength or weakness. Current forecasts are calling for an increase in production of 0.2% from November's level. A weaker reading would be considered good news for bonds and could help lower mortgage rates, but the CPI is by far the more important data for the bond market and will have the biggest impact on that day's mortgage pricing.

Lastly for Wednesday, the Federal Reserve's Beige Book will be posted at 2:00 PM ET. This report is named simply after the color of its cover and details economic conditions throughout the U.S. by Fed region. Since the Fed relies heavily on it during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any surprises, particularly regarding inflation, unemployment or future hiring. Any reaction to the report though will come during afternoon trading.

Thursday’s sole monthly data is December’s Housing Starts at 8:30 AM. It helps us measure housing sector strength and future mortgage credit demand by tracking construction starts of new homes. It is not considered to be one of the more important releases each month, so I don't see it causing much movement in mortgage rates Thursday but does carry the potential to affect trading and rates if it shows a significant surprise.

The final report of the week is January'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 slightly change mortgage rates. If consumers feel better about their own financial situations, they are more apt to make a large purchase in the near future, fueling economic activity. Good news would be a reading weaker than the 75.0 that is expected.

Overall, Tuesday or Wednesday will probably be the most active day for mortgage rates with some key economic data being posted both days. The least active day will probably be Monday, but Thursday also has little to be too concerned with. But the stock markets can be a big influence on bond trading and mortgage pricing any day, so maintaining contact with your mortgage professional this week is highly recommended if still floating an interest rate. 

Where does your recycling go?

Have you ever gone to your local recycling center and see what they do with your old bottles and cans and cardboard boxes?

Some places have single-stream recycling where you put all items into one big bin.  Other places still request that you sort into separate bins.

But what happens when it leaves the curb?

(This information is taken from here and here)

Newspapers, magazines, catalogs, phone books, and mixed paper are separated from corrugated cardboard.

Some newspapers, magazines, catalogs, and phone books are shipped to paper mills in the U.S., Canada, and the Far East, and used to make new newsprint and gray cardboard.

Some corrugated cardboard is sent to factories in the U.S. and Mexico where it is made into paperboard, brown paper grocery bags, and new cardboard.

Bottles, cans, beverage cartons, and aluminum foil are separated into piles of steel, glass, aluminum, beverage cartons, and plastic.

Steel is sold to scrap metal dealers and steel mills to make a variety of new steel products.

Milk and juice containers are de-polycoated and the paper remaining is used to make new products.

Glass is separated by color-clear, brown, and green-crushed into cullet (small pieces ready for melting), and sold to manufacturers of new glass bottles and jars.

Aluminum cans are baled and returned to can manufacturers where they are melted down, made into new cans, and back on grocery shelves within six weeks.

Aluminum foil is also baled and returned to manufacturers where it is processed into new aluminum.

Plastic is sorted by type and sent to manufacturers who make products such as artificial lumber and stuffing for ski jackets.

Countries such as China are prepared to pay high prices for recyclables such as waste plastic; mainly because they do not have readily available sources of virgin materials (no indigenous forests or oil supplies) and they have a large manufacturing industry that requires these products.

This Week's Market Commentary

This week brings us little to drive bond trading and mortgage rates. There is only one monthly economic report scheduled, which is considered to be of low importance to the markets anyhow. That would give the appearance that we are in for a quiet week for mortgage rates, but I don’t believe this will be the case. There probably will be less activity and movement than we saw last week. However, I suspect that we will still end up seeing a fair amount of movement in rates between Monday’s opening and Friday’s closing.

There is nothing of importance scheduled to be posted Monday or Tuesday. This means that the stock markets will probably dictate bond direction there first part of the week. If the major stock indexes rally again, they will pressure bonds leading to higher mortgage rates. However, stock weakness should allow bond prices to rise and mortgage rates to improve.

Besides the sole monthly economic report late in the week, we also have two Treasury auctions that have the potential to influence mortgage pricing. They will be held Wednesday and Thursday when 10-year Notes and 30-year Bonds are sold. The 10-year sale is the more important of the two as it will give us a better indication for demand of mortgage-related securities. If the sales are met with a strong demand from investors, we should see the bond market move higher during afternoon trading the days of the auctions. But a lackluster interest from buyers, particularly international investors, would indicate a waning appetite for longer-term U.S. securities and lead to broader bond selling. The selling in bonds would likely result in upward revisions to mortgage rates.

Also worth noting is some news from overseas before the markets open Thursday. The Bank of England’s monetary policy announcement (equivalent to our FOMC) will be released at 7:15 AM ET while the European Central Bank will announce at 7:45 AM ET. The ECB will draw the most attention as global investors are extremely concerned about the Eurozone and what actions will be taken to shore up some of its’ member’s finances. We should be on alert for a reaction in the bond and mortgage markets if they yield any surprises.

November's Goods and Services Trade Balance will be posted early Friday morning. It measures the size of the U.S. trade deficit and is expected to show a $41.8 billion deficit. This data usually does not directly affect mortgage rates, but it does influence the value of the U.S. dollar versus other currencies. A stronger dollar makes U.S. securities more attractive to international investors because they are worth more when sold and converted to the investor's domestic currency. But unless we see a significant variance from forecasts, I don't believe this data will lead to a change in mortgage rates Friday.

Overall, it would be easy to say this will be a calm week for the mortgage markets due to the lack of important or highly influential events scheduled. I would not be surprised to see stocks move lower for the week, helping to push funds back into bonds. We saw some improvement in bonds late Friday, so if your lender did not improve rates during afternoon trading, you have an improvement of approximately .125 - .250 of a discount point waiting at tomorrow’s opening. That could shrink or get larger depending on how the markets perform during early morning trading, but there is a decent possibility of starting the week off in the right direction. With the benchmark 10-year Treasury Note currently yielding 1.90%, I believe there is more likelihood of seeing bonds improve (pushing yields and mortgage rates lower) in the immediate future than seeing them move lower (raising yields and mortgage pricing). Of course, this is just speculation and only an opinion, so please maintain contact with your mortgage professional if still floating an interest rate.