August 11th, 2008 9:46 AM by Lehel Szucs
Monday's bond market has opened in negative territory despite early stock losses that are resulting from oil concerns. The Dow is currently down 42 points while the Nasdaq has fallen 5 points. The bond market is currently down 6/32, but we will likely see a slight improvement to this morning's mortgage rates due to strength in bonds late Friday.
There is no relevant economic data scheduled for release today, but the rest of the week brings us five reports for the bond market to digest. The first is June's Trade Balance report tomorrow morning that gives us the size of the U.S. trade deficit. It is the week's least important report and likely will have little impact on the bond market and mortgage rates. Analysts are expecting to see a $61.9 billion deficit, but it will take a wide variance to directly influence mortgage pricing.
July's Retail Sales data will be released early Wednesday morning. This data is very important to the financial market s and mortgage rates because it helps us measure consumer spending. Since consumer spending makes up two-thirds of the U.S. economy, any data related to it can cause a fair amount of movement in the markets. A smaller than expected increase would indicate that consumers are spending less than previously thought, potentially slowing the economy. This is good news for the bond market and mortgage rates as it eases inflation concerns and makes long-term securities such as mortgage-related bonds more attractive to investors. Current forecasts are calling for an increase of 0.5%.
The most important data of the three is July's Consumer Price Index (CPI) at 8:30 AM Thursday. The CPI is one of the most important reports we see each month. It measures inflation at the consumer level of the economy. There are two readings in the report- the overall index and the core data reading. The more important of the two is the core data because it excludes more volatile food and en ergy prices. Current forecasts call for an increase of 0.4% in the overall and 0.2% in the core data reading. Smaller than expected increases should lead to a bond rally and lower mortgage rates. However, stronger than expected readings will likely cause a spike in mortgage pricing.
There are two pieces of data scheduled for release Friday. The first is Industrial Production data for July. This report gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is considered to be of moderately high importance and may cause movement in mortgage rates. Analysts are currently expecting to see no change in production between June and July. N increase in output could lead to higher mortgage rates Friday, while a weaker than expected figure should help push rates lower.
The second report of the day will come from the University of Michigan who will release its Index of Consumer Sentiment for August at 9:45 AM. This index gives us a measurement of consumer willingness to spend. If confidence is rising, then consumers are more apt to make large purchases. This helps fuel consumer spending and economic growth. A drop in confidence will probably boost bond prices, leading to lower mortgage rates. If the index rises, indicating that confidence is rising and spending is likely to continue, we may see mortgage rates move higher Friday.
Overall, look for the most movement in bond prices and mortgage rates the middle part of the week. Wednesday or Thursday will likely turn out to be the most important days. If we get stronger than expected results in the Retail Sales and CPI releases, I fear that we may see mortgage rates spike higher fairly quickly. If those reports do further ease inflation concerns, I will likely be shifting to a float recommendation across the board. But, the risk versus reward comparison short-term still favors the risk side in my opinion, therefore, I am holding the lock recommendations for short-term closings for the time being.
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