This Week’s Market Commentary

This week brings us the release of only three monthly reports that are relevant to mortgage rates in addition to another FOMC meeting. None of the economic reports are considered to be of high importance. In fact, all of them are thought to be low or moderately important to the financial markets.

This should help limit the possibility of significant changes to mortgage rates most days this week, with exception to the FOMC meeting results.

There is nothing of concern scheduled for release tomorrow, so look for the stock markets to be the biggest influence on bond trading and mortgage rates. If the stock markets extend last week’s streak of gains, we may see pressure in the bond market and small upward changes to mortgage pricing tomorrow. However, if the week starts off with a weak opening in stocks, bonds and mortgage borrowers should benefit.

August’s Housing Starts will kick-off the week’s data early Tuesday morning. This report will probably not have much of an impact on the bond market or mortgage rates. It gives us a measurement of housing sector strength and mortgage credit demand by tracking construction starts of new homes, but is usually considered to be of low importance to the financial and mortgage markets. It is expected to show a decline in new home starts between July and August. I believe we need to see a significant surprise in this data for it to have a noticeable impact on mortgage rates Tuesday.

August’s Existing Home Sales report will be released late Wednesday morning. The National Association of Realtors posts this data, giving us an indication of housing sector strength by tracking home resales. It is expected to show a small increase from July’s sales, however, this data probably will be neutral towards mortgage pricing unless its results vary greatly from forecasts. Market traders will likely be more focused on the afternoon activities.

The FOMC meeting begins Tuesday and is a two-day meeting. Mr. Bernanke and friends will adjourn at 2:15 PM ET Wednesday. There is no chance of seeing any type of change to key short-term interest rates. However, the post-meeting statement could very well lead to volatility during afternoon trading as investors dissect it in an effort to find when the Fed’s next move may come.

Market participants are anxiously waiting to hear what the Fed has in mind to help stimulate economic activity. Many feel that there isn’t much that they can do at this point to quickly boost economic growth. This was originally scheduled to be a single day meeting, but was extended to a two-day meeting to allow more time for them to discuss their options. Needless to say, it will be an interesting afternoon Wednesday when the post-meeting statement is read.

The Conference Board will post its Leading Economic Indicators (LEI) for August late Thursday morning. The LEI index attempts to measure economic activity over the next three to six months. It is expected to show a 0.1% rise, meaning that it is predicting a slight increase in economic activity over the next several months. A larger than expected increase would be considered negative news for bonds and could lead to a minor increase in mortgage rates Thursday.

Overall, there really isn’t a specific report that stands out as the most important of the week. The most important day is Wednesday with the housing data and the FOMC meeting, but I don’t believe any of this week’s economic data has the potential to move the markets or mortgage rates heavily. However, we still may see some changes in rates day-to-day, especially if the stock markets move significantly higher or lower. If still floating an interest rate, continued contact with your mortgage professional is recommended, especially the middle part of the week.

This Week’s Market Commentary

This week brings us the release of five relevant economic reports that may influence mortgage rates in addition to two Treasury auctions. A couple of these reports are considered to be highly important to the financial and mortgage markets, meaning that we may see significant changes to rates this week. There is a very good chance of seeing noticeable changes in rates at least one day, if not several days.

The week’s first event is a 10-year Treasury Note auction Tuesday, which will be followed by a 30-year Bond auction Wednesday. It is fairly common to see some weakness in bonds before these sales as investors prepare for them. If the sales are met with a decent demand from investors, indicating interest in longer-term securities such as mortgage-related bonds still exists, the earlier losses are usually recovered after the results are announced. The results of the sales will be posted at 1:00 PM ET each day. If demand was strong, particularly from international investors, we should see mortgage rates improve during afternoon trading Tuesday and Wednesday.

The important economic data starts Wednesday morning when August’s Retail Sales report and Producer Price Index (PPI) will both be posted early morning. The sales report will give us a very important measurement of consumer spending, which is extremely relevant to the markets because it makes up two-thirds of the U.S. economy. Current forecasts are calling for a 0.2% increase in sales. Analysts are also calling for a 0.3% rise in sales if more volatile auto transactions are excluded. Larger than expected increases would be considered bad news for bonds and likely lead to an increase in mortgage pricing since it would indicate economic growth.

One of the week’s two important inflation readings is the second report scheduled for release Wednesday morning. The Labor Department will post August’s Producer Price Index (PPI), giving us an important measurement of inflationary pressures at the producer level of the economy. There are two readings that analysts follow in this release. They are the overall index and the core data reading. The core data is the more important of the two since it excludes more volatile food and energy prices.

Analysts are predicting no change in the overall index, and a rise of 0.2% in the core data. Stronger than expected readings could fuel inflation concerns in the bond market. That would be bad news for bonds and mortgage rates because inflation is the number one nemesis of the bond market as it erodes the value of a bond’s future fixed interest payments. As inflation becomes more of a concern in the markets, bonds become less appealing to investors, leading to falling prices and higher mortgage rates.

Thursday also has two reports scheduled, but one is much more important than the other. The first is August’s Consumer Price Index (CPI) during early morning hours. The CPI is one of the most important reports we see each month. It is considered to be a key indicator of inflation at the consumer level of the economy. As with its’ sister PPI report, there are two readings in the report- the overall index and the core data reading. Current forecasts show a 0.2% increase in the overall reading and a 0.2% rise in the core data reading. As with the PPI, a larger increase in the core data would likely lead to higher mortgage rates Thursday.

August’s Industrial Production data will be posted mid-morning Thursday. 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 moderately important but could help change mortgage rates if there is a significant difference between forecasts and the actual reading. Analysts are expecting to see little change from July’s level of output. A sizable increase could lead to higher mortgage rates, while a weaker than expected figure would indicate a still softening manufacturing sector and would be considered good news for bonds and mortgage rates. However, the CPI is the key data of the day and will likely influence mortgage pricing much more than the production data will.

The last release of the week will be posted by the University of Michigan late Friday morning. Their Index of Consumer Sentiment will give us an indication of consumer confidence, which hints at consumers’ willingness to spend. If confidence is rising, consumers are more apt to make large purchases. But, if they are growing more concerned of their personal financial situations, they probably will delay making that large purchase. This influences future consumer spending data and can impact the financial markets. It is expected to show a reading of 56.3, which would mean confidence rose from August’s level. That would be considered bad news for bonds and mortgage rates because strengthening consumer spending fuels economic growth.

Overall, I think we need to label Wednesday or Thursday as the most important day of the week with the Retail Sales and CPI reports being released respectively. However, Tuesday’s 10-year Treasury Note auction also has the potential to heavily influence bond trading and mortgage rates. Today will probably end up being the calmest day for mortgage rates, but we still may see minor changes if the stock markets show much movement.