October 28th, 2008 10:42 AM by Lehel Szucs
Tuesday's bond market has opened well in negative territory despite a new record low reading on consumer confidence. The stock markets are showing sizable gains as investors speculate about another Fed rate cut tomorrow. The Dow is currently up 115 points while the Nasdaq has gained 9 points. The bond market is currently down 22/32, which with yesterday's late weakness will push this morning's mortgage rates higher by approximately .750 of a discount point.
The Conference Board reported late this morning that their Consumer Confidence Index (CCI) fell this month to its lowest reading ever. The reading of 38.0 was significantly lower than the 52.0 that was forecasted and indicates that consumers are too concerned about their own financial situations to make large purchases in the near future. This is actually favorable data for the bond market and mortgage rates, but traders are preparing for tomorrow's FOMC meeting and reacting to this morning's stock gain s. This has prevented bonds from moving higher as a result of this report.
The week's FOMC meeting began today and will adjourn tomorrow afternoon. There is now a pretty large consensus that the Fed will lower key short-term interest rates at this meeting, but what is being debated is the size of the cut. Some analysts are calling for a .750 cut while the majority think a half-point reduction is coming. This makes the post meeting statement even more important than usual as traders will try to figure out if the Fed thinks this is the last cut or if they are prepared to make another in the future. The meeting will adjourn at 2:15 PM ET, so look for any reaction to come during afternoon trading.
Tomorrow also brings us the release of some important economic data. The Commerce Department will post Durable Goods Orders for September at 8:30 AM tomorrow. This report gives us a measurement of manufacturing sector strength by tracking orders at U.S. factor ies for big-ticket items. Analysts are currently calling for a drop in new orders of approximately 1.0%. If we see a smaller than expected decline 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.
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... Float if my closing was taking place between 21 and 60 days... Float 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 2008