Market Commentary for the Week of September 8th

This week brings us the release of only two pieces of monthly economic data in addition to two Treasury auctions that have the potential to affect mortgage rates. Despite the low number of reports, we still will likely see a fair amount of movement in the markets and mortgage pricing. The economic data is set for late in the week and the Treasury auctions will take place mid-week.

There is nothing of relevance scheduled to be posted or announced Monday, Tuesday or Wednesday morning. In the absence of anything on the schedule, look for the stock markets to affect bond trading and mortgage pricing early this week. As long as no major news or events transpire, such as developments in Ukraine, stock strength will probably lead to bond weakness and higher mortgage rates. If the major stock indexes fall from current levels, bond prices should rise, pushing mortgage rates lower the first couple days.

There are two Treasury auctions this week that have the potential to influence mortgage rates. The first is Wednesday’s 10-year Treasury Note auction, which will be followed by a 30-year Bond auction Thursday. 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 that interest in longer-term securities such as mortgage-related bonds is strengthening, the earlier losses are usually recovered after the results are announced. The results of each sale will be posted at 1:00 PM ET of auction day. If demand was strong, particularly from international investors, we should see mortgage rates improve during afternoon trading Wednesday and Thursday. However, weak levels of interest could lead to broader selling in the bond market that could push mortgage rates higher.

Friday morning has both pieces of economic data scheduled with one of them considered to be a major release. The highly important report is August’s Retail Sales at 8:30 AM Friday. This Commerce Department report will give us a very important measurement of consumer spending that is extremely relevant to the markets because it makes up over two-thirds of the U.S. economy. Current forecasts are calling for a 0.6% 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.

The other relevant monthly 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 projects consumer willingness to spend. If a consumer’s confidence in their own financial situation is rising, they are more apt to make large purchases in the near future. But, if they are growing more concerned about their job security or finances, they probably will delay making that sizable purchase. This influences future consumer spending data and therefore, impacts the financial markets. It is expected to show a reading of 83.5 that would mean confidence rose from August’s level of 82.5. That would be considered slightly negative news for bonds and mortgage rates. Good news for mortgage shoppers would be a sizable decline in the index.

Overall, Friday is the best candidate to be most important day with all of the week’s economic data scheduled, but we could see movement in rates multiple days. With nothing scheduled for release Monday or Tuesday, either could end up being the calmest day of the week. The Treasury auctions raise the possibility of afternoon volatility in the middle days. With the FOMC meeting, projections and press conference looming next week, any surprises this week could affect theories about what the Fed will say following that meeting. I am also concerned with the fact that last Friday’s favorable employment data wasn’t enough to keep the benchmark 10-year Treasury Note yield below 2.44%. Despite the morning rally, it closed at 2.46%. This is could signal another upward move in bond yields and mortgage rates is coming. Therefore, if still floating an interest rate and closing in the near future, I strongly recommend maintaining contact with your mortgage professional the entire week.