This Week's Market Commentary

There are only three pieces of monthly economic data scheduled for release this week. None of them are considered to be highly important, so we don't have much to pin our hopes on or to be concerned with this week. This could help give the mortgage market a chance to breathe a little. While that would normally not be something to look forward to, it should be welcomed news following the beating mortgage rates have taken over the past couple weeks.

December's Factory Orders data is the first piece of data, scheduled to be posted at 10:00 AM ET tomorrow. It is similar to last week's Durable Goods Orders release in giving us a measurement of manufacturing sector strength, but this data includes new orders for both durable and non-durable goods. It is not one of the more important reports we get each month, however, it can influence mortgage pricing if it varies greatly from forecasts. Analysts are expecting a 2.4% increase in new orders, indicating manufacturing sector strength. The bond market would like to see a much smaller increase, meaning that manufacturing activity was not as strong as many had thought.

Employee Productivity and Costs data for the 4th quarter will be released early Thursday morning. It can cause some movement in the bond market, but should have a minimal impact on mortgage pricing. If the productivity reading varies greatly from analysts' forecasts of a 1.2% decline, we may see some movement in mortgage rates. Higher levels of worker productivity is good news for the bond market because it allows the economy to expand while keeping inflation subdued. On the other hand, bond traders would prefer to see the labor costs reading decline to limit wage inflation concerns.

The third and final report of the week is December's Goods and Services Trade Balance data early Friday morning. This report measures the U.S. trade deficit and can affect the value of the U.S. dollar versus other currencies, but it usually does not cause enough movement in bond prices to affect mortgage rates. It is expected to show a $45.4 billion trade deficit.

Overall, I am expecting a much calmer week in the mortgage market than we have seen the past couple. With little economic data to drive bond trading, look for the stock markets to play a major role in bond movement and mortgage rate changes. If the major stock indexes extend their recent rally that closed the Dow above 14,000 Friday for the first time since Oct 2007, we could see bond prices fall and their yields move further above 2.00%. Since mortgage rates tend to follow bond yields, this would be bad news for mortgage shoppers. However, if stocks fall from current levels, we should see bond prices rise and mortgage rates move lower this week.