Market Commentary for the Week of September 22nd

This week brings us the release of five relevant economic reports for the bond market to digest in addition to two potentially influential Treasury auctions. Most of the reports are considered to be of moderate to fairly high importance to the markets, so they do have the potential to affect mortgage rates although I am expecting to see less volatility in the financial and mortgage markets than we saw last week.

The first report of the week is August’s Existing Home Sales from the National Association of Realtors late Monday morning. This report will give us an indication of housing sector strength by tracking home resales in the U.S. It is expected to show a small increase from July’s sales, indicating the housing sector improved slightly last month. However, this data probably will be neutral towards mortgage pricing unless its results vary greatly from forecasts.

August’s New Home Sales will be released late Wednesday morning. The Commerce Department is expected to say that sales of newly constructed homes rose last month, indicating strength in the new home portion of the housing sector also. This report will likely not have a noticeable impact on mortgage rates unless its readings differ greatly from forecasts. This is the week’s least important report in terms of potential impact on mortgage rates, partly because it covers only the small portion of all homes sales that Monday’s Existing Home Sales report does not.

The Treasury will sell 5-year Notes Wednesday and 7-year Notes Thursday. They will tell us if there is an appetite in the markets for medium-term securities. If investor demand in these sales is strong, particularly from international buyers, the broader bond market should move higher, pushing mortgage rates lower. But a lackluster interest from investors could lead to bond selling and higher mortgage pricing. The results of the sales will be announced at 1:00 PM ET each day, so any reaction to the results will come during afternoon trading Wednesday and Thursday.

Thursday’s only monthly data is August’s Durable Goods Orders, which is the week’s most important report. This report gives us an indication of manufacturing sector strength by tracking orders for big-ticket items at U.S. factories. Big-ticket products are items that are expected to last three or more years such as electronics and appliances. Analysts are expecting to see a large decline in new orders, indicating weakness in the manufacturing sector. A larger decline than the 16% that is being forecasted should help boost bond prices and cause mortgage rates to drop Thursday because signs of economic weakness make longer-term securities more appealing to investors. However, a much smaller decline or an increase in new orders would indicate a stronger than expected manufacturing sector that would likely help push mortgage rates higher. It is worth noting that this data is known to be quite volatile from month-to-month, so a slight or moderate variance may not affect mortgage pricing.

Friday morning has the final revision to the 2nd Quarter Gross Domestic Product (GDP). Since this data is aged now and the preliminary reading of the 3rd Quarter GDP will be released next month, I don’t see this revision having much of an impact on the financial markets or mortgage pricing. The GDP is important because it is the total sum of all goods and services produced within the U.S. and is considered the best measurement of economic activity. It is expected to show that the economy grew at an annual rate of 4.6%. This would be a stronger pace than the previous estimate of 4.2%, making the data negative for bonds and mortgage rates. The lower the number, the better the news it is for mortgage rates.

The second report of the day is the University of Michigan’s revised Index of Consumer Sentiment for September. The preliminary reading that was released earlier this month showed an 84.6 reading. Analysts are expecting to see a small upward revision, meaning consumer confidence was slightly stronger than previously thought. Waning confidence is good news for bonds because consumers that are concerned about their own financial and employment situations are less likely to make a large purchase in the near future, limiting economic growth. Therefore, a lower than expected reading would be favorable news for bonds and should help improve mortgage rates.

Overall, I don’t see an obvious choice for key day of the week but Thursday has the single most important data of the five. So, let’s label it as likely to be most active although Friday does have two reports scheduled also. The least important day looks to be Tuesday with nothing of relevance scheduled. I suspect we will see changes in mortgage rates multiple days this week, but in small increments rather than sizable moves.