Princeton Capital Blog

This Week’s Market Commentary

April 29th, 2013

Mortgage Market CommentaryThis week is quite busy in terms of the number of economic reports and other events scheduled and the significance of the data being released. There are eight pieces of economic data that may influence mortgage rates along with a two-day FOMC meeting. There is relevant data being released every day of the week, so expect to see plenty of movement in mortgage rates the next five days.

March’s Personal Income and Outlays data is the first of the economic releases, coming early Monday morning. It helps us measure consumers’ ability to spend and current spending habits, which is important to the mortgage market due to the influence that consumer spending-related data has on the financial markets. If a consumer’s income is rising, they are more likely to make additional purchases in the near future, fueling economic growth. This raises inflation concerns and has a negative impact on the bond market and mortgage rates. Current forecasts are calling for a 0.3% increase in the income reading and a 0.1% rise in spending. If we see smaller than expected readings, the bond market should open higher Monday morning, making an improvement to mortgage rates a good possibility.

The second report of the week is the 1st Quarter Employment Cost Index (ECI) early Tuesday morning that tracks employer costs for wages and benefits. This gives us a measurement of wage-inflation. If it shows a large increase, we may see wage inflation concerns rise as employers will need to pass those increases into the pricing of their products and services. That would cause the bond market to fall and mortgage rates to rise. A smaller than expected increase would be good news for the bond market and mortgage pricing. Current forecasts are showing a rise of 0.5%.

April’s Consumer Confidence Index (CCI) will also be released Tuesday morning, but at 10:00 AM ET. This index is considered to be key indicator of future spending by consumers. The group surveys 5,000 consumers from across the country about their personal financial situations. If sentiment is strong or rising, it is believed that consumers are more apt to make large purchases in the near future. However, if they are concerned about issues such as job security and savings, they will probably delay making large purchases. The latter is better for the bond market and mortgage rates because the expected slowdown in spending would keep inflation and economic growth concerns to a minimum. On the other hand, a sizable increase could hurt the bond market, pushing mortgage rates higher Tuesday. It is expected to show a reading of 61.0, which would be an increase from March’s 59.7 reading. The lower the reading, the better the news it is for mortgage rates.

The Institute for Supply Management (ISM) will post their manufacturing index for April late Wednesday morning. 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 51.0, which would be a slight decline from March’s 51.3. 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.

This week’s FOMC meeting will begin Tuesday but will not adjourn until Wednesday afternoon. It will likely adjourn with an announcement of no change to key short-term interest rates, but we may see some volatility in the markets following the 2:15 PM ET post-meeting statement. If the statement gives any hint of change in their current forecasts on when they expect to adjust key short-term interest rates, we could see a sizable change to mortgage rates Wednesday afternoon.

Thursday has two pieces of monthly or quarterly economic reports scheduled, but neither is considered to be highly important. The first comes from the Labor Department, who will release its 1st Quarter Productivity and Costs data early Thursday morning. 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 smaller increase than what is forecasted could cause bond prices to drop and mortgage rates to rise slightly Thursday morning. It is expected to show a 1.2% increase in productivity.

March’s Goods and Services Trade Balance report will also be released early Thursday morning. This report gives us the size of the U.S. trade deficit but likely will not have much of an impact on the bond market or mortgage pricing. It is expected to show a $43.5 billion trade deficit, but it is the least important of this week’s data and likely will have little influence on Thursday’s mortgage rates.

Friday brings us the release of the almighty monthly Employment report, giving us April’s employment statistics. This is where we may see a huge rally or major sell-off in the bond market and potentially large changes in mortgage rates. The ideal situation for the bond and mortgage markets would be an increase in the unemployment rate and a much smaller number of payrolls added to the economy during the month than was expected. Just how much of an improvement or worsening in rates depends on how much variance there is between forecasts and actual readings. This could turn out to be a wonderful day in the mortgage market, but it also carries risks of seeing mortgage rates move higher if the Labor Department posts stronger than expected readings. Current forecasts are calling for the unemployment rate to remain at 7.6% and that approximately 150,000 jobs were added during the month.

March’s Factory Orders data will be posted late Friday morning, giving us another measure of manufacturing sector strength or weakness. It is similar to last week’s Durable Goods Orders, except this report includes non-durable goods such as food and clothing. Generally, the market is more concerned with the durable goods orders like refrigerators and electronics than items such as cigarettes and toothpaste. This is why the Durable Goods report usually has more of an impact on the financial markets than the Factory Orders report does. Still, a noticeably larger decline than the 2.5% that is expected could push mortgage rates slightly lower if the employment data matches forecasts.

Overall, I believe Friday will be the most important day of the week with the employment data being posted since Wednesday’s FOMC meeting likely won’t yield any surprises. The employment data can easily erase the week’s accumulated gains or losses in mortgage rates if it shows noticeable variances from forecasts. We may actually see a sizable change in rates Wednesday also if the ISM index shows favorable or unfavorable results, but I am predicting Friday to be the most active. Even though I am currently a bit optimistic towards rates improving, this could change at any time and still suggest proceeding cautiously if still floating an interest rate. This would be a very good week to maintain contact with your mortgage professional if you have not locked a rate yet.

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