Market Commentary for the Week of May 9th

     
This week brings us the release of only three economic reports that have the potential to influence mortgage rates. All of the week’s relevant events will take place the middle and latter days, with nothing of importance set for Monday or Tuesday. Two of the reports are considered to be of elevated importance to the bond market and therefore mortgage rates. This raises the possibility of seeing noticeable movement in rates multiple days this week.

Before we get to the week's economic reports, we have to deal with a couple of Treasury auctions. The Treasury will hold a 10-year Note sale Wednesday and a 30-year Bond sale Thursday. Results of the auctions will be posted at 1:00 PM ET each day. If they are met with a strong demand from investors, we could see bond prices rise enough during afternoon trading to cause downward revisions to mortgage rates. However, lackluster bidding in the sales, meaning longer-term securities are losing their appeal, could lead to higher mortgage pricing those afternoons.

The first piece of economic data this week is April’s Retail Sales at 8:30 AM ET Friday morning. This is an extremely important report for the financial markets since it measures consumer spending. Consumer spending makes up over two-thirds of the U.S. economy, so this data can have a pretty significant impact on the markets. Current forecasts are calling for a 0.8% increase in sales from March to April. A weaker than expected level of sales should push bond prices higher and mortgage rates lower Friday morning as it would signal that economic activity may not be as strong as thought. However, an unexpected increase could fuel concerns of economic growth that would lead to stock buying and bond selling, pushing mortgage rates higher.

April’s Producer Price Index (PPI) will also be released at 8:30 AM ET Friday. It helps us track inflationary pressures at the producer level of the economy. If this report reveals weaker than expected readings, indicating inflation is not a concern at the manufacturing level, we should see the bond market improve. The overall index is expected to rise 0.3%, while the core data that excludes more volatile food and energy prices has been forecasted to rise 0.1%. A decline in the core data will be ideal for mortgage shoppers because inflation is the number one nemesis for long-term securities such as mortgage-related bonds. As inflation rises, longer-term securities become less appealing to investors since inflation erodes the value of those securities’ future fixed interest payments. That is one of the reasons why the bond market tends to thrive in weaker economic conditions with low levels of inflation.

May’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment will close out the week’s calendar just before 10:00 AM ET Friday. This index measures consumer willingness to spend, which relates to consumer spending. If consumers are more confident in their own financial situations, they are more apt to make large purchases in the near future. This report usually has a moderate impact on the financial markets though, because it is not exactly factual data. It is expected to show a reading of 89.7, which would be an increase from April’s final reading of 89.0, indicating consumers are more confident than last month. If it shows a large decline in consumer confidence, bond prices could rise and mortgage rates would move slightly lower because waning confidence means consumers are less apt to make a large purchase in the near future. I suspect that the earlier reports will draw the most attention Friday and have the bigger impact on mortgage rates.

Overall, the calmest day for mortgage rates will likely be Tuesday while the best candidate for most active day is Friday. We also need to watch stocks for mortgage rate movement. Generally speaking, stock weakness usually makes bonds more attractive while stock gains tend to draw funds from bonds, leading to higher mortgage rates.

Market Commentary for the Week of May 2nd

      
This week brings us the release of five pieces of economic data that are likely to influence mortgage rates. While that's not an overly large number of reports, it is worth noting that two of them are extremely important and they all come over only three days. That leads me to believe it is going to be a very active week for the financial and mortgage markets.

The week’s calendar begins Monday with the release of April's Institute for Supply Management's (ISM) manufacturing index at 10:00 AM ET. This is usually the first important economic report released each month and gives us an indication of manufacturer sentiment. A reading above 50 means that more surveyed trade executives felt business improved during the month than those who felt it had worsened. This points toward more manufacturing activity and could hurt bond prices, pushing mortgage rates higher. Analysts are expecting to see a reading of 51.4, down slightly from March’s 51.8. Ideally, bond traders would like to see a reading below 50.0 as it would hint at contraction in the manufacturing sector rather than growth, but a decline from March’s level would still be good news for mortgage shoppers.

Tuesday has nothing in terms of economic reports that we need to be concerned with, but Wednesday has three. The ADP Employment report is set for release early Wednesday morning, which has the potential to cause some movement in the markets if it shows much stronger or weaker numbers. This report tracks changes in private-sector jobs of ADP’s clients that use them for payroll processing. While it does draw attention, it is my opinion that it is overrated and is not a true reflection of the broader employment picture. It also is not accurate in predicting results of the monthly government report that usually follows a couple days later. Still, because we do often see a reaction to the report, we should be watching it. Analysts are expecting it to show that 196,000 new payrolls were added. The lower the number of jobs, the better the news it is for mortgage rates.

The second report of the day will come from the Labor Department, who will release its 1st Quarter Productivity and Costs data during early morning hours. This information helps us measure employee productivity in the workplace. High levels of productivity help allow low-inflationary economic growth. If employee productivity is rapidly rising, the bond market should react favorably. However, a sizable decline could cause bond prices to drop and mortgage rates to rise slightly Wednesday morning. It is expected to show a 1.4% drop in worker productivity during the first three months of the year.

Wednesday's final report will be February’s Factory Orders at 10:00 AM ET. This data is similar to the Durable Goods Orders report that was posted last week, except it includes orders for both durable and non-durable goods. It will give us another measurement of manufacturing sector strength. It is considered to be only moderately important to the bond and mortgage markets, so unless it varies greatly from forecasts of a 0.5% increase, I suspect that the data will have a minimal impact on Wednesday’s mortgage rates.

The biggest news of the week will come early Friday morning when the Labor Department posts March’s Employment report, revealing the U.S. unemployment rate and the number of jobs added or lost during the month. This is an extremely important report to the financial and mortgage markets. It is expected to show that the unemployment rate was unchanged at 5.0% and that approximately 207,000 payrolls were added to the economy during the month. A higher unemployment rate and a much smaller than expected payroll number would be good news for bonds and would likely push mortgage rates lower Friday morning because it would indicate weaker than thought conditions in the employment sector of the economy. However, stronger than expected results would probably fuel a stock rally and bond selling that leads to a sizable increase in mortgage pricing.

Overall, Friday is the single most important day of the week due to the significance of the monthly Employment report, but Monday’s ISM report is considered highly important also. Tuesday is the best candidate for lightest day because traders will probably be making adjustments Thursday before Friday's key economic release. Due to the significance of some of this week's data, I highly recommend maintaining contact with your mortgage professional this week if still floating an interest rate.