Princeton Capital Blog

This Week’s Market Commentary

March 21st, 2011

This week brings us the release of five monthly and quarterly reports for the bond market to digest. Two of the reports can be considered much less important than the others, but with mortgage-relevant reports scheduled four out of the five days we will still likely see some movement in rates a couple days this week.

The first report of the week is February’s Existing Home Sales from the National Association of Realtors late this morning. It will give us a measurement of housing sector strength and mortgage credit demand, but is usually considered to be of moderate importance to the financial markets.

Its’ sister report- February’s New Home Sales, will be posted Wednesday morning. Since it is today’s only data, it may influence bond trading enough to cause a slight change in mortgage rates, but it will take a large variance from forecasts for it to heavily influence rates. Current forecasts have the report showing a decline in sales and Wednesday’s release showing a minor increase in sales. The bond market would prefer to see weakness as it would make a broader economic recovery difficult if the housing sector is still struggling. And since weaker economic conditions make long-term securities such as mortgage-related bonds more attractive to investors, disappointing results would be favorable for mortgage rates.

There is nothing of relevance scheduled for release Tuesday, so look for the stock markets to be the biggest factor behind changes to mortgage rates. Wednesday’s only data is the New Sales report, but since it tracks only approximately 15% of all home sales, it likely will not have much of an impact on mortgage pricing.

Thursday’s only important data comes from the Commerce Department, who will post February’s Durable Goods Orders. This report gives us a measurement of manufacturing sector strength by tracking new orders for big-ticket items, or products that are expected to last three or more years. This data is known to be volatile from month to month but is still considered to be of fairly high importance to the markets. Analysts are expecting it to show an increase in new orders of approximately 0.9%. A larger increase would be considered negative for bonds as it would indicate economic strength and could lead to higher mortgage rates Thursday morning.

The next relevant data is Friday’s final revision to the 4th Quarter GDP. This is the second and final revision to January’s preliminary reading of the U.S. Gross Domestic Product, or the sum of all goods and services produced in the U.S. It is expected to show that the economy grew at an annual pace of 2.9% last quarter, up slightly from the previous estimate of 2.8%. Analysts are now more concerned with next month’s preliminary reading of the 1st quarter than data from three to six months ago, so I don’t expect this report to affect mortgage rates much.

The final report of the week comes from the University of Michigan at 10:00 AM ET Friday. Their revision to their March Consumer Sentiment Index will give us an indication of consumer confidence, which hints at consumers’ willingness to spend. This is relevant because rising levels of confidence usually means consumers are more willing to make large purchases in the near future. That translates into fuel for economic growth. It is expected to show a very small decline from the preliminary reading of 68.2, meaning that surveyed consumers were slightly less optimistic about their own financial situations than previously thought. Favorable results for bonds and mortgage rates would be a large decline in confidence.

Overall, it is difficult to label one particular day as the most important of the week. The single most important report will likely be the Durable Goods Orders, but none of the week’s data has the potential to be a major market mover. If the stock markets move lower, we should see gains in bonds and improvements in mortgage rates. But, if stocks move higher, pressure in bonds is possible, leading to higher mortgage pricing. I believe there is still plenty of the recent flight-to-safety funds still in bonds that will probably move out if the stock markets continue to regain last week’s losses. This could lead to increases in mortgage rates if investors shift funds away from bonds and back into the stock markets.

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