October 11th, 2009 6:23 PM by Lehel S.
This week brings us the release of five economic reports that are of interest to the mortgage market along with the minutes from the last FOMC meeting. The week also gets heavy in quarterly earnings releases for companies, which could cause significant movement in the stock markets again. The earnings results could affect bond trading as investors move funds into stocks if the reports are good. The other possibility is that the earnings reports would generally disappoint, meaning investors may move funds out of stocks and into bonds as a safe-haven. The latter would be good news for the bond market and mortgage rates.
The bond market is closed tomorrow in observance of the Columbus Day holiday and will reopen Tuesday morning. The first piece of data comes Wednesday morning when September's Retail Sales report is posted. This data is very important to the markets because it measures consumer spending by tracking sales at retail establishments in the U.S. Since consumer spending makes up two-thirds of the U.S. economy, any related data is considered to be highly important. If we see weaker than expected readings in this report, the bond market should respond favorably and mortgage rates should drop. However, stronger than expected sales could fuel a stock rally and push mortgage rates higher. Current forecasts are calling for a 2.1% decline in sales. The large drop from August's sales is expected to come from a significant decline in auto transactions since the Cash for Clunkers program ended.
Also scheduled for release Wednesday is the minutes to the last FOMC meeting. These may be a major mover of the markets or could be a non-factor, depending on what they say. The key will be concerns over inflation and the Fed's next move. If the Fed members were concerned about inflationary pressures, we may see the bond market move lower and mortgage rates higher Wednesday afternoon. However, if they indicate that inflation is s till not a threat and that a rate increase is not likely in the near future, the bond market and mortgage rates should remain calm.
Thursday morning brings us another major economic release. September's Consumer Price Index (CPI) will be released early Thursday morning. It measures inflationary pressures at the consumer level of the economy and is one of the most important reports that the bond market gets each month. Analysts are expecting to see a rise of 0.2% in the overall index and an increase of 0.1% in the core data reading. A larger than expected increase in the core reading could raise inflation concerns in the bond market and push mortgage rates higher Thursday. However, a smaller than expected reading should ease inflation concerns and lead to lower mortgage rates. This is one of the most important reports we see each month, so its impact on mortgage rates could be significant.
The remaining two reports are both scheduled for release Friday morning. September's Industrial Production data is the first release of the day and will be posted mid-morning. It gives us an indication of manufacturing strength by tracking orders at U.S. factories, mines and utilities. It is expected to show a 0.1% increase in output from August's level, meaning that manufacturing activity rose slightly. A larger than expected increase in output would be negative for bonds and mortgage rates while a decline should help push mortgage rates lower Friday morning.
The last report of the week is October's preliminary reading to the University of Michigan's Index of Consumer Sentiment late Friday morning. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets. If it shows a sizable decline in consumer confidence, bond prices will probably rise. It is expected to show a reading of 74.0, up slightly from September's final of 73.5.
Overall, I am expect ing to see a fair amount of movement in mortgage rates this week, but mostly the latter part of the week. The key reports are Wednesday's Retail Sales report and Thursday's CPI data. But the active week for corporate earnings can also heavily influence trading and mortgage rates any day of the week. Accordingly, please proceed cautiously if you have not locked an interest rates yet.
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... Lock if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
©Mortgage Commentary 2009