Mortgage Market Update

This week is quite busy in terms of the number of economic reports and other events scheduled and the significance of the data being released. There are eight pieces of economic data that may influence mortgage rates along with a two-day FOMC meeting. There is relevant data being released every day of the week, so expect to see plenty of movement in mortgage rates the next five days.

March's Personal Income and Outlays data is the first of the economic releases, coming early this morning. It helps us measure consumers' ability to spend and current spending habits, which is important to the mortgage market due to the influence that consumer spending-related data has on the financial markets. If a consumer's income is rising, they are more likely to make additional purchases in the near future, fueling economic growth. This raises inflation concerns and has a negative impact on the bond market and mortgage rates. Current forecasts are calling for a 0.3% increase in the income reading and a 0.1% rise in spending. If we see smaller than expected readings, the bond market should open higher today, making an improvement to mortgage rates a good possibility.

The second report of the week is the 1st Quarter Employment Cost Index (ECI) early Tuesday morning that tracks employer costs for wages and benefits. This gives us a measurement of wage-inflation. If it shows a large increase, we may see wage inflation concerns rise as employers will need to pass those increases into the pricing of their products and services. That would cause the bond market to fall and mortgage rates to rise. A smaller than expected increase would be good news for the bond market and mortgage pricing. Current forecasts are showing a rise of 0.5%.

April's Consumer Confidence Index (CCI) will also be released Tuesday morning, but at 10:00 AM ET. This index is considered to be key indicator of future spending by consumers. The group surveys 5,000 consumers from across the country about their personal financial situations. If sentiment is strong or rising, it is believed that consumers are more apt to make large purchases in the near future. However, if they are concerned about issues such as job security and savings, they will probably delay making large purchases. The latter is better for the bond market and mortgage rates because the expected slowdown in spending would keep inflation and economic growth concerns to a minimum. On the other hand, a sizable increase could hurt the bond market, pushing mortgage rates higher Tuesday. It is expected to show a reading of 61.0, which would be an increase from March's 59.7 reading. The lower the reading, the better the news it is for mortgage rates.

The Institute for Supply Management (ISM) will post their manufacturing index for April late Wednesday morning. This is usually the first important economic report released each month and gives us an indication of manufacturer sentiment. A reading above 50 means that more surveyed trade executives felt business improved during the month than those who felt it had worsened. This points toward more manufacturing activity and could hurt bond prices, pushing mortgage rates higher. Analysts are expecting to see a reading of 51.0, which would be a slight decline from March's 51.3. Ideally, bond traders would like to see a reading below 50.0 as it would hint at contraction in the manufacturing sector rather than growth.

This week's FOMC meeting will begin Tuesday but will not adjourn until Wednesday afternoon. It will likely adjourn with an announcement of no change to key short-term interest rates, but we may see some volatility in the markets following the 2:15 PM ET post-meeting statement. If the statement gives any hint of change in their current forecasts on when they expect to adjust key short-term interest rates, we could see a sizable change to mortgage rates Wednesday afternoon.

Thursday has two pieces of monthly or quarterly economic reports scheduled, but neither is considered to be highly important. The first comes from the Labor Department, who will release its 1st Quarter Productivity and Costs data early Thursday morning. This information helps us measure employee productivity in the workplace. High levels of productivity help allow low-inflationary economic growth. If employee productivity is rapidly rising, the bond market should react favorably. However, a smaller increase than what is forecasted could cause bond prices to drop and mortgage rates to rise slightly Thursday morning. It is expected to show a 1.2% increase in productivity.

March's Goods and Services Trade Balance report will also be released early Thursday morning. This report gives us the size of the U.S. trade deficit but likely will not have much of an impact on the bond market or mortgage pricing. It is expected to show a $43.5 billion trade deficit, but it is the least important of this week's data and likely will have little influence on Thursday's mortgage rates.

Friday brings us the release of the almighty monthly Employment report, giving us April's employment statistics. This is where we may see a huge rally or major sell-off in the bond market and potentially large changes in mortgage rates. The ideal situation for the bond and mortgage markets would be an increase in the unemployment rate and a much smaller number of payrolls added to the economy during the month than was expected. Just how much of an improvement or worsening in rates depends on how much variance there is between forecasts and actual readings. This could turn out to be a wonderful day in the mortgage market, but it also carries risks of seeing mortgage rates move higher if the Labor Department posts stronger than expected readings. Current forecasts are calling for the unemployment rate to remain at 7.6% and that approximately 150,000 jobs were added during the month.

March's Factory Orders data will be posted late Friday morning, giving us another measure of manufacturing sector strength or weakness. It is similar to last week's Durable Goods Orders, except this report includes non-durable goods such as food and clothing. Generally, the market is more concerned with the durable goods orders like refrigerators and electronics than items such as cigarettes and toothpaste. This is why the Durable Goods report usually has more of an impact on the financial markets than the Factory Orders report does. Still, a noticeably larger decline than the 2.5% that is expected could push mortgage rates slightly lower if the employment data matches forecasts.

Overall, I believe Friday will be the most important day of the week with the employment data being posted since Wednesday’s FOMC meeting likely won’t yield any surprises. The employment data can easily erase the week's accumulated gains or losses in mortgage rates if it shows noticeable variances from forecasts. We may actually see a sizeable change in rates Wednesday also if the ISM index shows favorable or unfavorable results, but I am predicting Friday to be the most active. 

Mortgage Market Update

This week has five pieces of economic data for the markets to digest in addition to two potentially relevant Treasury auctions. The week’s data starts late tomorrow morning with the release of March's Existing Homes Sales numbers from the National Association of Realtors at 10:00 AM ET. This report gives us an indication of housing sector strength and mortgage credit demand. It is considered to be moderately important to the markets, but can influence mortgage pricing if it shows a sizable variance from forecasts. Ideally, the bond market would like to see a drop in home resales because a soft housing sector makes a broader economic recovery difficult. Analysts are expecting to see a small increase in sales between February and March. The larger the increase, the worse the news it is for bonds and mortgage rates.

The sister report to tomorrow’s housing data is March's New Home Sales. It will be released late Tuesday morning, but tracks a much smaller portion of all home sales as Monday’s report does. It also gives us an indication of housing sector strength and future mortgage credit demand, however, it is the week's least important report. Unless it varies greatly from analysts' forecasts, I am not expecting the data to cause much movement in mortgage rates. Analysts are currently forecasting an increase in sales of newly constructed homes.

Wednesday morning's data is March's Durable Goods Orders that will be released at 8:30 AM ET. This report gives us an indication of manufacturing sector strength by tracking orders for big-ticket items at U.S. factories. These are products that are expected to last three or more years, such as appliances and electronics. Current forecasts are calling for a decline in new orders of 3.1%. This would be a sign of manufacturing sector contraction, but this data can be quite volatile from month-to-month. Therefore, a small variance between forecasts and the actual results will not heavily influence the markets or mortgage rates. A much larger decline would be considered good news for bonds and mortgage pricing, while a large increase would indicate manufacturing sector strength. A sign of solid manufacturing growth could lead to higher mortgage rates Wednesday.

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 Wednesday and 7-year Notes on Thursday. 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. On the other hand, 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 each auction day, so look for any reaction to come during afternoon hours.

Friday has the two remaining reports, one of which is highly important to the financial and mortgage markets. That would be the preliminary version of the 1st Quarter Gross Domestic Product (GDP). This is arguably the single most important report that we see on a regular basis. The GDP is the sum of all products and services produced in the U.S. and is considered to be the best measure of economic growth or contraction. I expect this report to cause sizable movement in the financial markets Friday and therefore the mortgage market also. Analysts are expecting it to show that the economy grew at an annual rate of 2.9%, which would be a much quicker pace than the final quarter of last year. A smaller increase would be considered good news for mortgage rates. But, a stronger than expected reading would almost certainly cause stock prices to rise and bond prices to fall, leading to higher mortgage rates Friday morning.

The last piece of a data is the University of Michigan's update to their Index of Consumer Sentiment for April. This report gives us an indication of consumer sentiment. I don't expect it to have a significant impact on bonds and mortgage pricing unless it varies greatly from forecasts, especially since it comes after the GDP reading. Current forecasts are calling for little change from the preliminary reading of 72.3. This means that surveyed consumers were just as optimistic about their own financial situations as they were earlier this month. This data is relevant because rising sentiment means consumers are more apt to make a large purchase in the near future, fueling economic growth.

Overall, look for a fair amount of movement in the financial markets and mortgage rates this week. Friday is the most important day due to the GDP, but we should see movement in rates several days, particularly days that stocks are active. Tuesday appears to be the best candidate for the quietest day for mortgage rates. If this week's reports reveal weaker than expected economic conditions, the bond market could extend its recent rally and mortgage rates should fall for the week.

Mortgage Market Update

Monday’s bond market has opened up slightly following early stock losses. The major stock indexes are retreating away from last week’s record levels with the Dow down 87 points and the Nasdaq down 21 points. The bond market is currently up 2/32, which will likely keep this morning’s mortgage rates close to Friday’s levels or possibly slightly lower.

There is nothing of importance scheduled for release today, so any changes to mortgage rates intra-day will probably come from stock movement. The rest of the week brings us the release of five economic reports that have the potential to affect mortgage rates. In addition, we have a bunch of corporate earnings releases that can significantly impact the stock markets and help direct funds into or away from mortgage-related bonds.

Tomorrow has three of the week’s five reports, beginning with March's Consumer Price Index (CPI) at 8:30 AM ET tomorrow. This index is one of the most important pieces of data we see each month. It is similar to last week'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. There are two readings in the index that traders watch- the overall and the core data that excludes more volatile food and energy prices. Analysts are expecting to see a 0.1%decline in the overall readings and a 0.2% rise in the core reading. The core data is the more important reading, which ideally will show a decline in prices at the consumer level.

March's Housing Starts is the next report, also coming early tomorrow morning. It gives us a measurement of housing sector strength and mortgage credit demand by tracking starts of new home construction and the number of permits issued for future starts. This data usually doesn't cause much movement in mortgage pricing unless it varies greatly from forecasts. It is expected to show a small increase in construction starts of new homes. Good news for the bond market and mortgage rates would be a decline in home starts, indicating housing sector weakness.

The third report of the day is March’s Industrial Production data that will be posted at 9:15 AM ET. It tracks 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 0.3%. 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. Signs of manufacturing sector strength are considered negative news for mortgage rates, so a decline in output would be good news for the bond market and mortgage shoppers.

Overall, it will likely be a moderately active week for mortgage rates. However, unlike many weeks, the most important news comes earlier in the week. I am labeling tomorrow as the most important due to the data that is scheduled and Friday appears to be the best candidate for the least active day. The stock markets could also heavily influence bond trading and mortgage pricing any day this week as we get more corporate earnings releases. I don’t think this will be one of the more active weeks in terms of mortgage rate movement, although we should see minor changes a couple days.

Mortgage Market Update

Monday’s bond market has opened flat as investors take a breather after Friday’s volatility. The stock markets are showing relatively minor losses with the Dow down 36 points and the Nasdaq down 4 points. The bond market is currently unchanged from Friday’s close, but that is a little higher than Friday’s morning level when mortgage rates were posted. Bonds weakened a little during afternoon trading, leading to some lenders to make upward revisions to their rate sheets late Friday.

There is nothing of relevance to mortgage rates scheduled for today. The rest of the week brings us the release of three relevant economic reports, in addition to a couple of Treasury auctions and the minutes from the last FOMC meeting. Corporate earnings season also kicks off today with Alcoa posting this afternoon. That report is usually a focal point because it is the first Dow component to report earnings each quarter. There are other companies scheduled to post this week that will also influence the markets and broader economic theories, but AA is the first of the key earnings. Generally speaking, weaker than expected reports hurt stock prices and make bonds more attractive to investors.

Tomorrow also has nothing of importance scheduled for release. The first events of the week will come Wednesday afternoon when we get the release of the minutes from the last FOMC meeting and have one of the Treasury auctions worth watching. Market participants will be looking at the minutes closely as they give us insight to the Fed's current thought process and individual Fed member opinions. The 10-year Treasury Note auction helps gauge investor demand for longer-term securities, including mortgage-related bonds.

Overall, look for the most movement in rates the latter part of the week, particularly Friday with all three of this week’s economic reports coming that day. The PPI and Retail Sales reports are considered highly important monthly reports, both of which will be released early Friday. Also look for the stock markets to influence bond trading and mortgage rates a good part of the week as traders react to the earnings news, but I believe we will see the most movement in rates the latter part.

Mortgage Market Update

Monday’s bond market has opened fairly flat following the three plus day holiday weekend. This morning’s economic data was good news for the bond market but weaker than expected reports that were posted Friday when the markets were closed are limiting this morning’s improvements. The stock markets are also having an uneventful morning with the Dow up 6 points and the Nasdaq down 11 points. The bond market is currently up 1/32, which may lead to a very slight improvement to mortgage rates if comparing to Thursday’s pricing.

The Institute for Supply Management (ISM) gave us today’s only relevant economic data with the release of their manufacturing index for March. They announced a reading of 51.3 late this morning that was noticeably lower than forecasts of 54.0 and February’s 54.2. This indicates that fewer surveyed manufacturers felt business improved during the month than did in February, hinting at manufacturing sector weakness. The reading remained above the benchmark growth indicator of 50.0, but is very close to falling below that level. Therefore, we should consider this data favorable for the bond market and mortgage rates.

Tomorrow’s only relevant data is February's Factory Orders at 10:00 AM ET. This Commerce Department report is similar to last week's Durable Goods Orders report, except it includes orders for both durable and non-durable goods. It will give us another measurement of manufacturing sector strength, but is one of the week’s less important reports. Unless it varies greatly from forecasts of a 2.5% increase, I suspect that it will be a non-factor in the mortgage market tomorrow.

Overall, Friday is the biggest day of the week due to the significance of the monthly Employment report and its impact on most of the financial markets and mortgage rates. The middle part of the week should be relatively calm unless something unexpected happens overseas or in the stock movements.