Princeton Capital Blog

This Week’s Market Commentary

January 30th, 2012

Calculator and MoneyThis week is extremely busy in terms of economic data scheduled for release and will likely be another active week for mortgage rates. There are seven economic releases scheduled for the week, some of which are known to be extremely influential on the financial and mortgage markets.

All seven of these reports are considered to be of moderate or high importance, meaning we should see quite a bit of movement in mortgage rates this week.

The first report of the week is January’s Personal Income and Outlays data tomorrow morning, which gives us an indication of consumer ability to spend and current spending habits. This is important because consumer spending makes up two-thirds of the U.S. economy. Current forecasts call for an increase in income of 0.4% while spending is expected to rise 0.1%. Larger increases would be good news for the stock markets and could hurt bond prices, driving mortgage rates higher tomorrow. Smaller than expected increases would be considered good news for mortgage rates.

Tuesday has two reports scheduled with the first being the 4th Quarter Employment Cost Index (ECI). It measures employer costs for employee wages and benefits, giving us an indication of the threat of wage inflation. If wages are rising, consumers have more money to spend. The report is considered moderately important and usually has more of an effect on the bond market than the stock markets. Current forecasts are showing an increase of 0.4%. A lower than expected reading would be favorable to bonds and mortgage rates Tuesday.

January’s Consumer Confidence Index (CCI) will be posted late Tuesday morning. This report is considered to be of moderate to high importance to the bond market and therefore can move mortgage rates. It is an indicator of consumer sentiment, which is important because waning confidence in their own financial situations usually means that consumers are less willing to make large purchases in the near future. Due to the significance of consumer spending, market participants are very attentive to related data. Analysts are expecting to see an increase from December’s reading, indicating a higher level of consumer confidence. A reading much smaller than the expected 67.0 would be ideal for the bond market and mortgage rates.

Wednesday’s big report comes late morning when the Institute of Supply Management (ISM) releases their manufacturing index for January. This index tracks manufacturer sentiment by rating surveyed trade executives’ opinions of business conditions. It is usually the first economic data released each month and is one of this week’s very important reports. Current forecasts are calling for a reading in the neighborhood of 54.7, which would be an increase from December’s reading. The lower the reading, the better the news for the bond market and mortgage rates because weak sentiment indicates a slowing manufacturing sector.

Wednesday also has a couple of private sector employment-related reports due to be released. They normally don’t draw much attention unless they show a significant surprise. I still not too concerned about their results, but the potential does exist that a significant variance in the numbers could lead to changes in mortgage pricing.

Employee Productivity and Costs data for the 4th quarter will be released early Thursday morning. It can cause some movement in the bond market, but should have a minimal impact on mortgage pricing. If it varies greatly from analysts’ forecasts of a 0.6% increase, we may see some movement in mortgage rates. However, the markets will be much more interested in Friday’s data, so a slight difference shouldn’t cause a noticeable move in rates.

Friday’s data is by far the most important of the week. The Labor Department will post January’s Employment data early Friday morning, giving us the U.S. unemployment rate and the number of jobs added or lost during the month among other related statistics. Analysts are expecting to see the unemployment rate remain unchanged at 8.5% and that approximately 170,000 new jobs were added to the economy. An increase in unemployment and a much smaller increase in payrolls would be great news for the bond market. It would probably create a bond rally, leading to lower mortgage rates Friday morning. However, if Friday’s report reveals stronger than expected results, we can expect to see mortgage rates move higher.

Late Friday morning, December’s Factory Orders data will be posted. It is similar to last week’s Durable Goods Orders release in giving us a measurement of manufacturing sector strength, but this data includes new orders for both durable and non-durable goods. It is one of the less important reports of the week, but can influence mortgage pricing if it varies greatly from forecasts. Analysts are expecting a 1.6% increase in new orders, hinting at manufacturing sector strength. However, the Employment report will be the focus of the markets.

Overall, look for Wednesday or Friday to be the biggest day for mortgage rates. Friday’s Employment report is the most important piece of data, but Wednesday’s ISM Index draws a lot of attention also. We could also see movement in rates tomorrow morning following the activity at the end of last week. If we get weaker than expected results from the ISM and Employment reports, we should see rates close the week lower than last Monday’s opening levels. If the data shows stronger than expected results, we may see mortgage rates move higher for the week. With some very important data being posted over the next five days, I strongly recommend keeping fairly constant contact with your mortgage professional if still floating an interest rate.

Creative Commons License photo credit: 401K

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