This Week’s Market Commentary
This week brings us the release of five reports that are considered relevant to mortgage rates but some of the data is considered to be very important and one is arguably the single most important data we see each month.
We also have two Treasury auctions that have the potential to swing bond trading enough to change mortgage rates. There are events that are relevant to mortgage rates, or at least have the potential to be, each day of the week, so we can expect to see a fair amount of volatility in the markets and possibly mortgage rates the next few days.
The first is February’s Personal Income & Outlays report early this morning. This data helps us measure consumers’ ability to spend and current spending habits, which is important to the mortgage market because of the influence that consumer spending- related information has on the financial markets.
If a consumer’s income is rising, they are more likely to make additional purchases in the near future. This raises inflation concerns, adds fuel for economic growth and has a negative effect on the bond market and mortgage rates. Current forecasts are calling for a 0.3% increase in income and a 0.5% rise in spending.
Smaller than expected increases would be ideal for mortgage shoppers.
March’s Consumer Confidence Index (CCI) will be posted late Tuesday morning. This index gives us an indication of consumers’ willingness to spend. Bond traders watch this data closely because consumer spending makes up two-thirds of our economy. If this report shows that confidence is falling, it would indicate that consumers are more apt to delay making large purchases. If the report reveals that confidence looks to be growing, we may see bond traders sell, pushing mortgage rates higher Tuesday morning. It is expected to show a
decline from February’s 70.4 reading to 65.0 for March.
The
biggest news of the week will come early Friday morning when the Labor Department posts March’s Employment report, giving us the U.S. unemployment rate and the number of jobs added or lost during the month. This is an extremely important report to the financial and mortgage markets. It is expected to show that the unemployment rate remained at 8.9% and that approximately 185,000 payrolls were added during the month. A higher unemployment rate and a smaller than expected payroll number would be good news for bonds and would likely push mortgage rates lower Friday morning because it would indicate weakness in the employment sector of the economy.
The Institute for Supply Management (ISM) will release their manufacturing index late Friday morning. This index gives us an important measurement of manufacturer sentiment by surveying trade executives and is one of the more important of this week’s data. A reading above 50 means more surveyed executives felt business improved during the month than those who said it had worsened.
This month’s report is expected to show a reading of 61.2, which would be a small decline from February’s reading of 61.4. This means that analysts think business sentiment remained fairly close to last month’s level. That would be neutral news for the bond market and mortgage rates.
A noticeable decline would be favorable for rates while an increase would be negative.
In addition to this week’s economic reports, there are two relatively important Treasury auctions that may also influence bond trading enough to affect mortgage rates. There will be an auction of 5-year Notes Tuesday and 7-year Notes on Wednesday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions to mortgage rates. However, strong sales usually make bonds more attractive to investors and bring more funds into bonds. The buying of bonds that follows usually translates into lower mortgage rates. Results of the sales will be posted at 1:00 PM ET auction day, so look for any reaction to come during afternoon hours.
Overall, I expect to see the most movement in rates either Tuesday or Friday. Friday is the most important day of the week with the employment numbers and ISM index being released, but we will likely see a fair amount of movement in rates Tuesday also. I am expecting tomorrow or Wednesday to be the calmest day of the week, but we should still see some changes to rates those days. In general, it will probably be a pretty active week for mortgage pricing. Accordingly, it would be prudent to maintain contact with your mortgage professional if still floating an interest rate.
This Week’s Market Commentary
This week brings us the release of seven relevant economic reports for the bond market to digest. We are also heading into corporate earnings season, which could lead to fluctuations in the stock markets.
If earnings come in lighter than estimates, the stock markets may fall, leading to an influx of funds into bonds. But if earnings and forecasts are strong, the major stock indexes may rally, pulling funds from bonds and leading to higher mortgage rates.
There is no relevant economic news scheduled for release tomorrow. The first report of the week comes Tuesday morning but it is the least important one. February’s Goods and Service Trade Balance will be posted early Tuesday morning. This data gives us the size of the U.S. trade deficit, but unless it varies greatly from forecasts, it likely will not cause much movement in mortgage rates. Current forecasts show a $45.7 billion trade deficit.
The first important report will be posted early Wednesday morning when the Commerce Department will release March’s Retail Sales data. This piece of data gives us a measurement of consumer spending, which is very important because consumer spending makes up two-thirds of the U.S. economy. Forecasts are calling for a 0.5% increase in sales last month. If we see a larger increase in spending, the bond market will likely fall and mortgage rates will rise. However, a weaker than expected reading could push bond prices higher and mortgage rates lower Wednesday.
The Federal Reserve will post its Fed Beige Book report at 2:00 PM ET Wednesday. This report is named simply after the color of its cover and details economic conditions throughout the U.S. by region. Since the Fed relies heavily on the contents of this report during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any significant surprises. Generally speaking, signs of strong economic growth or inflation rising would be considered negative for bonds and mortgage rates. Slowing economic conditions with little sign of inflationary pressures would be considered favorable for bonds and mortgage pricing.
The two Treasury auctions are scheduled for Wednesday and Thursday. There is a 10-year Treasury Note sale Wednesday and a 30-year Bond sale Thursday. We could see some weakness in bonds ahead of the sales as investing firms sell current holdings to prepare for them. This weakness is usually only temporary if the sales are met with a decent demand. The results of the auctions will be posted at 1:00 PM ET each day. If the demand from investors was strong, the bond market could rally during afternoon trading, leading to lower mortgage rates. If the sales were met with a poor demand, the afternoon weakness may cause upward revisions to mortgage pricing Wednesday and/or Thursday afternoon.
Thursday’s important data comes when the Labor Department will post March’s Producer Price Index (PPI) at 8:30 AM ET. It will give us an important measurement of inflationary pressures at the producer level of the economy. There are two portions of the report that analysts watch- the overall reading and the core data reading. The core data is more important to market participants because it excludes more volatile food and energy prices. If it shows rapidly rising prices, inflation fears may hurt bond prices since it erodes the value of a bond’s future fixed interest payments, leading to higher mortgage rates. A slight increase, or better yet a decline in prices, would be good news for the bond market and mortgage rates. Current forecasts are calling for a 1.0% increase in the overall reading and a 0.2% rise in the core data.
The remaining three economic reports will all be posted Friday morning. This first will be March’s Consumer Price Index (CPI). This index is one of the most important pieces of data we see each month. It is similar to Thursday’s PPI but measures inflationary pressures at the consumer level of the economy. If inflation is rapidly rising, bonds become less appealing to investors, leading to bond selling and higher mortgage rates. As with the PPI, there are two readings in the index that traders watch. Analysts are expecting to see a 0.5% increase in the overall readings and a 0.2% rise in the core reading. If we see larger increases, we could get higher mortgage rates Friday.
March’s Industrial Production data will be posted at 9:15 AM ET Friday. It gives us a measurement of output at U.S. factories, mines and utilities, translating into an indication of manufacturing sector strength. Current forecasts are calling for an increase in production of 0.6%. This data is considered to be only moderately important to rates, so it will take more than just a slight variance to influence bond trading and mortgage pricing.
The final release of the week is the University of Michigan’s Index of Consumer Sentiment at 9:55 AM ET Friday. Their consumer sentiment index will give us an indication of consumer confidence, which hints at consumers’ willingness to spend. If confidence is rising, consumers are more apt to make large purchases. But, if they are growing more concerned of their personal financial situations, they probably will delay making that large purchase. This influences future consumer spending data and can have a moderate impact on the financial markets. Good news would be a sizable decline from March’s 67.5 reading. Current forecasts are calling for a reading of approximately 66.0.
Overall, look for the most movement in rates the middle part of the week. The Retail Sales and CPI reports are the biggest names on the agenda. Either of them can cause significant movement in the markets and mortgage rates, so either Wednesday or Friday will probably be the most active day of the week. Look for the stock markets to influence bond trading and mortgage rates the first part of the week, but we can expect to see the most movement in rates the latter part.