For those of you who like to follow what happens each week in the economic world and what affects the mortgage backed securities, this is what happened the week of October 26th to October 30th! What a week!
This week brings us the release of seven relevant economic reports and two important Treasury auctions for the bond market to digest. There is relevant data or events scheduled every day except tomorrow, so there is a pretty good chance of seeing noticeable movement in mortgage rates several days this week.
- ON MONDAY
Monday’s bond market has opened well in negative ground following early stock gains. The stock markets are showing early strength with the Dow up 97 points and the Nasdaq up 27 points. This pushes the Dow above the important 10,000 benchmark level yet again, but its ability to hold that level has come up short during recent trading. It appears that until that level can hold, many analysts will remain skeptical of the recent stock rally. However, as stocks rise this morning, bonds are falling. The bond market is currently down 24/32, which will likely push this morning’s mortgage rates higher by approximately .125 - .250 of a discount point over Friday’s morning rates
The first report of the week is one of the more important ones. October’s Consumer Confidence Index (CCI) will be posted late Tuesday morning. This Conference Board index gives us a measurement of consumer willingness to spend. It is expected to show a small increase in confidence from last month’s 53.1 reading, indicating that consumers are a little more likely to make large purchases in the near future than last month. As long as the reading doesn’t exceed the forecasted 53.5, we will likely see the bond market react favorably to this report. This data is watched closely because consumer spending makes up two-thirds of the U.S. economy.
- ON TUESDAY
The Conference Board said that their Consumer Confidence Index (CCI) for October fell to 47.7. This was much weaker than the 53.5 that was expected and indicates that consumers are less optimistic about their own financial situations than many had thought. That is favorable news for bonds and mortgage rates because it means that consumers are less likely to make large purchases in the near future, therefore, limiting economic growth
Wednesday morning the Commerce Department will post Durable Goods Orders for September. This report gives us a measurement of manufacturing sector strength by tracking orders at U.S. factories for big-ticket items. Analysts are currently calling for an increase in new orders of approximately 1.0%. If we see a larger than expected increase in orders, mortgage rates will probably rise as bond prices fall. A weaker than expected reading should be good news for the bond market and mortgage rates, but this data can be quite volatile from month to month and is difficult to forecast.
Also Wednesday is the release of September’s New Home Sales. This data covers the remaining 15% of home sales that last week’s Existing Home Sales report tracked and is this week’s least important data. It is expected to show an increase in sales, but regardless of its results I am not expecting it to have a significant impact on mortgage rates Wednesday.
- ON WEDNESDAY
Wednesday’s bond market has opened in positive territory again after this morning’s only economic report showed no surprises. A negative open for stocks is also helping bonds during early trading. The Dow and Nasdaq are both showing losses of 28 points. The bond market is currently up 10/32, which should improve this morning’s mortgage rates by approximately .250 - of a discount point.
The Commerce Department released September’s Durable Goods Orders this morning, announcing an increase of 1.0% in new orders for big-ticket items. This matched forecasts and had little impact on this morning’s trading or mortgage pricing.
September’s New Home Sales report was also posted this morning, but its results did surprise many analysts. It was expected to show that sales of newly constructed homes rose last month, but actually revealed a decline in sales. It also revised August’s final sales figures lower, meaning that sales were weaker than thought over the past two months. This can be considered favorable news for the bond market and mortgage rates, but this data usually does not heavily influence trading or rates.
The next relevant data is the preliminary reading of the 3rd Quarter Gross Domestic Product (GDP) early Thursday morning. The GDP is considered to be the benchmark measurement of economic growth because it is the sum of all goods and services produced in the U.S. and therefore is likely to have a major impact on the financial markets and mortgage pricing. There are three versions of this report, each a month apart. Thursday’s release is the first and usually has the biggest impact on the markets. Current forecasts call for an increase of approximately 3.2% in the GDP. If this report does show a much smaller increase, I am expecting to see the bond market rally and mortgage rates to fall. However, a larger than expected rise could lead to bond selling and a sizable increase in mortgage pricing.
- ON THURSDAY
Thursday’s bond market has opened in negative territory after today’s important economic data gave us stronger than expected results. The stock markets are showing strength with the Dow up 86 points and the Nasdaq up 24 points. The bond market is currently down 15/32, but we will probably see little change in this morning’s mortgage rates due to strength in bonds late yesterday.
Today’s big news was the release of the preliminary reading of the 3rd Quarter Gross Domestic Product (GDP) that is considered to be the benchmark reading of economic activity. It showed a larger than expected jump of 3.5%, indicating that the economy grew at a faster pace than many had thought. This is bad news for bonds and mortgage rates since it raises concerns that the economic recovery may be sooner than later. Generally speaking, weak economic conditions make long-term securities such as mortgage-related bonds more attractive to investors. When the economy is expanding, inflation concerns make those securities less appealing and drive mortgage rates higher.
There are three reports scheduled for release Friday. The first is the 3rd Quarter Employment Cost Index (ECI), which tracks employer costs for salaries and benefits. Rapidly rising costs raises wage inflation concerns and may hurt bond prices. It is expected to show an increase in costs of 0.5%. A smaller than expected increase would be good news for bonds and mortgage rates.
September’s Personal Income and Outlays report will also be posted early Friday. This data gives us an indication of consumer ability to spend and current spending habits. It is important to the markets because consumer spending makes up two-thirds of the U.S. economy. Rising income generally indicates that consumers have more money to spend, making economic growth more of a possibility. This is bad news for the bond market and mortgage rates because it raises inflation concerns, making long-term securities such as mortgage related bonds less attractive to investors. Analysts are expecting to see no change in income and decline in outlays of 0.5%.
The week’s last report comes at 10:00 AM ET Friday when the University of Michigan updates their Index of Consumer Sentiment for this month. Current forecasts show this index rising slightly this month’s preliminary reading of 69.4. This index is moderately important because it helps us measure consumer confidence, which is believed to indicate consumers’ willingness to spend. Since consumer spending makes up two-thirds of the U.S. economy, any related data is considered to be relevant.
- ON FRIDAY
Friday’s bond market has opened in positive territory after this morning’s economic data failed to show any significant surprises and the stock markets opened with losses. Stocks are starting the next leg of their recent roller coaster ride with sizable losses. The Dow has given back over half of yesterday’s rally with a loss of 109 points so far. The Nasdaq is not fairing much better with a 20 point loss. The bond market is currently up 11/32, but I don’t believe we will see much of a change in this morning’s mortgage rates compared to yesterday’s morning rates due to weakness in bonds late yesterday.
The first of today’s three reports was the 3rd Quarter Employment Cost Index (ECI). It showed an increase of 0.4% that matched forecasts. This means that employer costs for wages and benefits rose moderately during the third quarter, but this was expected. Therefore, its’ impact on today’s trading and mortgage rates has been minimal.
September’s Personal Income and Outlays report was the second, revealing no change in personal income last month and a 0.5% decline in spending. These figures pegged analysts’ expectations and also have not influenced today’s mortgage pricing.
The third and final report of the day was the University of Michigan’s update to their Index of Consumer Sentiment for October. They announced a reading of 70.6 that exceeded forecasts of a 70.0 reading. This means that consumers were a little more optimistic about their own financial situations than many had thought. That can be considered bad news for bonds but since this data is only moderately important, it fortunately has been unable to prevent bonds from rising this morning
Next week is extremely busy in terms of economic reports being posted. Unlike many, we will see important data posted this Monday. The Institute for Supply Management (ISM) will post their manufacturing index late Monday morning. It is considered to be one of the more important reports we get each month, but it will not be the most important data next week. In addition the data, that includes the monthly employment figures, we also have another FOMC meeting to watch for. Look for more details on next week’s events in Sunday’s weekly preview.
If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now...