Princeton Capital Blog

This Week’s Market Commentary

June 25th, 2012

This week brings us the release of six pieces of economic data in addition to a couple of Treasury auctions that have the potential to influence mortgage rates. None of the reports are considered to be highly important or labeled as market-movers, but they do carry enough significance to affect mortgage pricing if they show surprises in their results.

May’s New Home Sales report kicks off this week’s data late tomorrow morning. It is similar to last week’s Existing Home Sales report, but tells us how well sales of newly constructed homes were last month. It is expected to show an increase in sales, but will likely not have much of an impact on mortgage rates because this data tracks the small portion of home sales that last week’s report did not. I believe it will take a large rise in sales or a sizable decline for this data to influence mortgage rates.

June’s Consumer Confidence Index (CCI) is the second report of the week. It will be posted late Tuesday morning and is important to the financial markets because it measures consumer willingness to spend. If consumers are more confident about their own financial situations, they are more apt to make large purchases in the near future. If it shows a sizable increase in confidence from last month, we can expect to see the bond market falter and mortgage rates rise slightly. Current forecasts are calling for a reading of 64.0, down from last month’s 64.9 reading. The lower the reading, the better the news for bonds and mortgage rates.

May’s Durable Goods Orders will be posted early Wednesday morning, giving us an indication of manufacturing sector strength. It tracks orders at U.S. factories for big-ticket items, or products that are expected to last three or more years. This data is known to be quite volatile from month to month and is expected to show an increase of 0.5% in new orders from April to May. A large decline would be the ideal scenario for the bond market and would likely lead to a decline in mortgage pricing because it would indicate manufacturing sector weakness.

Thursday’s only monthly or quarterly economic data is the final reading to the 1st Quarter Gross Domestic Product (GDP). The GDP is the sum of all products and services produced in the U.S. and is considered to be the best measurement of economic growth or contraction. However, this particular data is quite aged now (covers January through March) and will likely have little impact on the bond market or mortgage pricing unless it varies greatly from previous readings. Market participants are looking more towards next month’s release of this quarter’s initial GDP reading. Last month’s first revision showed a 1.9% rise in the GDP, which is what analysts are expecting to see again.

Friday has two reports scheduled, the first being May’s Personal Income and Outlays data at 8:30 AM ET. This report gives us an indication of consumer ability to spend and current spending activity. They are important because consumer spending makes up over two-thirds of the U.S. economy. If consumer income is rising, they have more money to spend each month. Analysts are expecting to see an increase of 0.1% in income and a 0.1% rise in the spending portion of the report. Declines in both of these readings would be good news for the bond market and mortgage rates.

The University of Michigan will close out this week’s data when they update their Index of Consumer Sentiment for May late Friday morning. This index gives us a measurement of consumer willingness to spend. As with Tuesday’s CCI, if consumers are more comfortable with their own financial situations, they are more apt to make large purchases in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, any related data has the potential to affect bond trading and mortgage rates. A downward revision would be considered good news for bonds and rates, but forecasts are calling for no change from this month’s preliminary reading of 74.1.

Also worth noting is the fact that the Fed will be selling more debt this week. These sales may influence broader bond trading enough to affect mortgage rates if they show strong or weak investor demand. There are sales every day except Friday but the two most likely to affect rates are Wednesday’s 5-year Note sale and Thursday’s 7-year Note auction. If they are met with a strong demand, we could see bond prices rise during afternoon trading. This could lead to afternoon improvements to mortgage rates also. But, if the sales draw a lackluster interest from investors, mortgage rates may move higher during afternoon trading those days.

Overall, Tuesday, Wednesday and Friday’s data should bring some volatility in trading and mortgage rates. It is difficult to label one particular day as the most important as none of them stand out as critical. In fact, any day that has a sizable move in stocks could help determine which day was the most active for mortgage rates.

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