August 9th, 2009 10:50 PM by Lehel Szucs
This week brings us the release of six relevant economic reports in addition to another FOMC meeting. The first is Employee Productivity and Costs data for the second quarter that will be released Tuesday morning. It will give us an indication of employee output. High levels of productivity are believed to allow the economy to grow without fears of inflation. I don't see this being a big mover of mortgage pricing, but since it is the only data of the day it may influence rates slightly. Analysts are currently expecting to see an increase in productivity of 5.4%. A higher than expected reading could help improve bonds, leading to lower mortgage rates Tuesday.
June's Trade Balance report will be released Wednesday morning. It gives us the size of the U.S. trade deficit but 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 $28.5 billion deficit, but it will take a wide variance to directly influence mortgage pricing.
The FOMC meeting will begin Tuesday morning and adjourn at 2:15 PM ET Wednesday. It is expected to yield no change to key interest rates. Usually, the post-meeting comments seem to have more of an influence on the markets than the rate adjustments themselves, or a lack of one in many cases. Look for the statement to lead to volatility during afternoon trading if it hints at what the Fed's next move may be and when it will come. If the statement does not give us new information, mortgage rates will probably move little after its release.
Thursday morning's sole monthly report is July's Retail Sales data. This data is very important to the financial markets 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 inc rease would indicate that consumers are spending less than previously thought, potentially slowing the economic recovery. 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 0.7%.
Friday brings us the release of three reports. The first is July's Consumer Price Index (CPI) at 8:30 AM. 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 energy prices. Current forecasts call for no change in the overall index and a 0.1% increase in the core data reading. Declines in the readings, especially in the core data, should lead to a bond rally and lower mort gage rates. However, stronger than expected readings will likely cause a spike in mortgage pricing Friday.
The remaining two pieces of data are relevant to mortgage rates but not nearly important as the CPI is. The second report of the day 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 a 0.4% increase in production between June and July. A larger increase in output could lead to higher mortgage rates Friday, but only if the CPI is a non-factor.
The last 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 co nsumers are more apt to make large purchases. This helps fuel consumer spending and economic growth. A drop in confidence will probably help boost bond prices. If the index rises, indicating that confidence is rising and spending is likely to continue, we may see mortgage rates move higher Friday morning. However, this is the least important of the day's three reports and will probably have the least impact on rates.
Also worth noting are two important Treasury auctions this week. The sale of 10-year Notes will be held Wednesday while 30-year Bonds will be sold Thursday. We often see some weakness in bonds ahead of the sales as the firms participating prepare for them. However, as long as they are met with decent demand from investors, the firms usually buy them back. This tends to help recover any presale losses. But, if the sales are met with a lackluster interest from investors- particularly international buyers, the bond market may move lo wer after the results are posted and mortgage rates may move higher. Those results will be announced at 1:00 PM each sale day.
Overall, look for the most movement in bond prices and mortgage rates the second half of the week. Thursday or Friday will likely turn out to be the most important day. 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. I suspect the FOMC meeting will not have as much of an influence on mortgage rates as recent meetings have, but the markets can react wildly to a single word or omission of a word in the statement, so we need to be cautious. This is certainly another week that continuous contact with your mortgage professional is highly recommended if you are still floating an interest rate.
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 takin g 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