Princeton Capital Blog

This Week’s Market Commentary

November 26th, 2012

This week brings us the release of six relevant economic reports for the markets to digest along with two potentially important Treasury auctions. All of the week’s data is being posted over four days with Monday being the only day with nothing scheduled. We should see a fair amount of movement in mortgage rates this week with the most movement likely coming the middle part of the week.

Tuesday has two of the week’s more important reports scheduled. October’s Durable Goods Orders is the first and will be posted at 8:30 AM ET. This data helps us measure manufacturing strength by tracking orders for big-ticket items, but is known to be quite volatile from month-to-month. It is expected to show a 0.4% decline in new orders. A larger than expected drop would be considered good news for the bond market and mortgage rates as it would indicate manufacturing sector weakness.
November’s Consumer Confidence Index (CCI) will be released late Tuesday morning by the Conference Board. It gives us a measurement of consumer willingness to spend. If consumer confidence is rising, analysts believe that consumers are more apt to make larger purchases, essentially fueling economic growth. This makes long-term securities such as mortgage-related bonds less attractive to investors and usually leads to higher mortgage rates. Analysts are expecting to see a small increase in confidence from last month’s level, meaning consumers were more optimistic about their own financial situations this month than they were last month. A weaker reading than the 73.0 that is expected would be good news for mortgage rates, while a stronger reading could push mortgage rates higher Tuesday.

Wednesday’s only relevant data is October’s New Home Sales report. It will give us an indication of housing sector strength, but is the week’s least important release. Analysts are expecting to see little change between September’s and October’s sales of newly constructed homes. It will take a large change in sales for this data to influence mortgage rates, partly because this report tracks such a small portion of all home sales.

Also Wednesday, the Federal Reserve will release their Beige Book at 2:00 PM ET. This report, which is named simply after the color of its cover, details economic conditions by region. That information is relied on heavily during the FOMC meetings when determining monetary policy, so its results can influence bond trading and mortgage rates if it shows any significant surprises. More times than not, this report will not influence the markets enough to cause intra-day changes to mortgage rates, but the potential to do so does exist.

The first revision to the 3rd Quarter Gross Domestic Product (GDP) will be posted early Thursday morning. It is expected to show a sizable upward revision from last month’s preliminary reading of a 2.0% annual rate of growth. The GDP measures the total of all goods and services produced in the U.S. and is considered to be the best measurement of economic activity. Current forecasts call for a reading of approximately 2.8%, meaning that there was more economic activity during the third quarter than previously thought. This would be bad news for the bond market and mortgage rates because solid economic growth hurts bond prices and mortgage rates.

Friday’s sole piece of economic data is October’s Personal Income and Outlays data. This data measures consumers’ ability to spend and their current spending habits. This is important because consumer spending makes up over two-thirds of the U.S. economy. It is expected to show that income rose 0.2% and that spending increased 0.1%. Weaker than expected readings would mean consumers had less money to spend and were spending less than thought. That would be favorable news for bonds and could lead to improvements in mortgage rates Friday morning.

In addition to this week’s economic reports, there are two relatively important Treasury auctions that may also influence bond trading enough to affect mortgage rates. There will be an auction of 5-year Treasury Notes Wednesday and 7-year Notes on Thursday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions in mortgage rates. However, strong investor demand usually make bonds more attractive to investors and brings more funds into the bond market. The buying of bonds that follows often translates into lower mortgage rates. Results of the sales will be posted at 1:00 PM ET auction day, so look for any reaction to come during afternoon hours.

Overall, I am expecting Monday to be the least important day of the week while Tuesday will likely be the most important due to the importance of that’s day data. Thursday’s GDP could also be a market mover if it disappoints the markets or shows a much stronger than expected reading. We have seen a little pressure in mortgage rates recently as stocks climbed higher, but I suspect we could see some improvement in rates this week. This is especially true if the economic data on the calendar gives us weaker than expected results or stocks give back some of their recent gains. However, as with any active week, please maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.

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