December 19,2011
This holiday-shortened trading week brings us the release of eight monthly or quarterly economic reports in addition to two semi-relevant Treasury auctions.
None of the releases are considered to be highly important to the markets and mortgage rates, but several of them do have the potential to cause some movement in rates. The more important news comes later in the week. Therefore, we may see more movement in mortgage pricing as the week progresses.
There is nothing of relevance scheduled for release tomorrow. This means we can look towards the stock markets for guidance on bond and mortgage rate direction. The Europe debt crisis will likely be in the headlines this week as leaders move to avoid downgrades by credit rating agencies that would be equivalent to adding gasoline to the fire. If the actions taken overseas are strong enough to calm investor fears here, stocks may bode well for the week, making it difficult for bonds to rally and push mortgage rates lower. On the other hand, if it becomes evident that the downgrades to their debt are unavoidable, fears about the impact they would have on the global economy will probably fuel stock selling and bond buying here. The latter would be good news for mortgage rates.
Tuesday’s only data is November’s Housing Starts, but it is the week’s least important data. I don’t see it causing much movement in mortgage rates unless it shows a huge variance from expectations. It is expected to show little change in construction starts of new homes, hinting at a flat housing sector last month. Generally speaking, an increase in new starts would be bad news for bonds and mortgage pricing, but unless there is a significant surprise it will likely have little impact on Tuesday’s mortgage rates.
November’s Existing Home Sales figures will be posted late Wednesday morning. This release will come from the National Association of Realtors while its sister release, Friday’s New Home Sales data, is a Commerce Department report. Both give us a measurement of housing sector strength and mortgage credit demand, however, neither is considered to be of high importance. And both of the reports are expected to show increases in sales, indicating housing sector growth. Weaker than expected readings would be considered positive for bonds and mortgage rates because they hint at a still weakening housing market. But unless the actual readings vary greatly from forecasts, the results will probably have little or no impact on mortgage rates.
Thursday brings us the release of three reports, with the first being the final revision to the 3rd Quarter Gross Domestic Product (GDP). I don’t think this data will have an impact on mortgage rates unless it varies greatly from its expected reading. Last month’s first revision showed that the economy expanded at a 2.0% annual pace during the quarter and this month’s revision is expected to show no change. A revision higher than the 2.0% rate that is expected would be considered bad news for bonds. But since this data is quite aged at this point, I don’t think it will have much of an impact on mortgage rates Thursday.
The second report of the day comes just before 10:00 AM ET when the revised University of Michigan Index of Consumer Sentiment for December is posted. Current forecasts are calling for a small upward revision from the preliminary reading of 67.7. This is fairly important because rising consumer confidence indicates that consumers may be more apt to make large purchases in the near future. A reading above the 68.0 that is forecasted would be negative for bonds and mortgage rates.
The Conference Board will release their Leading Economic Indicators (LEI) for the month of November. This 10:00 AM release attempts to measure or predict economic activity over the next three to six months. It is expected to show a small increase in activity, meaning that it predicts a slowly expanding economy over the next several months. This probably will not have much of an impact on bond prices or affect mortgage rates unless it exceeds current forecasts of a 0.3% increase from October’s reading. The lower the reading, the better the news for bonds and mortgage pricing. If it shows a smaller increase, the bond market may move slightly higher, leading to a minor improvement in rates.
The final two economic reports of the week come Friday morning along with November’s New Home sales. The first is November’s Personal Income and Outlays data. It will give us an important measurement of consumer ability to spend and current spending habits. Since consumer spending makes up two-thirds of the U.S. economy, any related data usually has a noticeable impact on the financial markets and mortgage rates. Current forecasts are calling for a 0.2% increase in income and a 0.3% increase in spending. If this report reveals weaker than expected readings, we should see the bond market improve and mortgage rates drop slightly Friday morning.
November’s Durable Goods Orders is the last report, also being posted early Friday morning. This data gives us an important measurement of manufacturing sector strength by tracking orders for big-ticket items or products that are expected to last at least three years. Analysts are expecting the report to show a 2.0% rise in new orders. A smaller increase in orders would indicate that the manufacturing sector was weaker than many had thought. This would be good news for the bond market and should drive mortgage rates lower. However, a larger jump in orders could lead to mortgage rates moving higher early Friday morning. This data is known to be quite volatile from month-to-month, so it is not unusual to see large headline numbers on this report.
This week also has Treasury auctions scheduled the first three days. The two that are most likely to influence mortgage rates are Tuesday’s 5-year and Wednesday’s 7-year Note sales. If those sales are met with a strong demand, particularly Wednesday’s auction, bond prices may rise during afternoon trading. This could lead to improvements to mortgage rates shortly after the results of the sales are posted at 1:00 PM ET each day. But a lackluster investor demand may create bond selling and upward revisions to mortgage rates.
Overall, I am expecting to see some movement in the markets and mortgage rates, especially if we get some surprising results from the week’s data or news about Europe’s financial crisis. Despite the holiday season, we need to keep a cautious approach toward rates because we are likely to see very thin trading (light volume) as a result of many traders keeping short hours or home for the holiday altogether. This means that firms that trade bonds will likely be keeping only a skeleton staff the latter part of the week and raises the possibility of a stronger reaction to surprises in the economic data than we normally would see.
The least important day for mortgage rates will likely be tomorrow unless something drastic happens overnight. We will probably see the most movement in rates Friday, but Thursday’s economic data can also move mortgage pricing noticeably. With the Christmas holiday next weekend, it is being observed next Monday. The bond market will close early this Friday afternoon ahead of the holiday and will reopen next Tuesday morning. Accordingly, proceed cautiously this week if still floating an interest rate and closing by the end of the year
This week brings us the release of only one piece of monthly economic data that is considered important to mortgage rates. It is a true holiday-shortened week with the financial markets closed today for observance of Christmas and the bond market closing early Friday in recognition of the New Year’s Day holiday next weekend.
