This Week’s Market Commentary

There are five economic reports scheduled for release this week that are relevant to mortgage pricing, but two of them are considered to be highly important to the financial and mortgage markets. In addition, there are several public speaking engagements by different regional Federal Reserve Presidents this week that may influence the markets.

However, I suspect that the economic reports and significant movement in stocks will be the biggest factors in whether mortgage rates move higher or lower this week.

March’s Personal Income & Outlays is the first of the economic releases, coming early tomorrow morning. It helps us measure consumers’ ability to spend and current spending habits, which is important to the mortgage market due to the influence that consumer spending-related data has on the financial markets. If a consumer’s income is rising, they are more likely to make additional purchases in the near future, fueling economic growth. This raises inflation concerns and has a negative impact on the bond market and mortgage rates. Current forecasts are calling for a 0.3% increase in the income reading and a 0.4% rise in spending. If we see smaller than expected readings, the bond market should open higher tomorrow morning, making an improvement to mortgage rates a good possibility.

The Institute for Supply Management (ISM) will post their manufacturing index for April late Tuesday morning. This is one of the first important economic reports released each month and gives us an indication of manufacturer sentiment. A reading above 50 means that more surveyed trade executives felt business improved during the month than those who felt it had worsened. This points toward more manufacturing activity and could hurt bond prices, pushing mortgage rates higher. Analysts are expecting to see a reading of 53.0, which would be a slight decline from March’s level of sentiment. The lower the reading, the better the news for bonds and mortgage rates.

March’s Factory Orders data is Wednesday’s only relatively important data. It will be released at 10:00 AM ET, giving us a measure of manufacturing sector strength. It is similar to last week’s Durable Goods Orders, except this report includes non-durable goods such as food and clothing. Generally, the market is more concerned with the durable goods orders like refrigerators and electronics than items such as cigarettes and toothpaste. This is why the Durable Goods report, usually has more of an impact on the financial markets than the Factory Orders report does. Still, a noticeably larger decline than the 1.8% that is expected could push mortgage rates slightly lower. But, an unexpected increase in new orders could lead to slightly higher mortgage pricing Wednesday.

The Labor Department will release its 1st Quarter Productivity and Costs data early Thursday morning. This information helps us measure employee productivity in the workplace. High levels of productivity help allow low-inflationary economic growth. If employee productivity is rapidly rising, the bond market should react favorably. However, a larger decrease than what is forecasted could cause bond prices to drop and mortgage rates to rise Thursday morning. It is expected to show a 0.4% decline in productivity.

Friday brings us the release of the almighty monthly Employment report, giving us April’s employment statistics. This is where we may see a huge rally or major sell-off in the bond market and potentially large changes in mortgage rates. The ideal situation for the bond and mortgage markets would be an increase in the unemployment rate and a much smaller number of payrolls added to the economy during the month than was expected.

Just how much of an improvement or worsening in rates depends on how much variance there is between forecasts and actual readings. This could turn out to be a wonderful day in the mortgage market, but it also carries risks of seeing mortgage rates move higher if the Labor Department posts stronger than expected readings. Current forecasts are calling for the unemployment rate to remain at 8.2% and that approximately 162,000 jobs were added during the month.

Overall, I believe Friday will be the most important day of the week with the employment data being posted. It can easily erase the week’s accumulated gains or losses in mortgage rates if it shows any surprises. We may actually see a noticeable change in rates Tuesday also if the ISM index shows favorable or unfavorable results. The middle part of the week will likely be the calmest, but I still suggest proceeding cautiously if still floating an interest rate. This would be a good week to maintain contact with your mortgage professional if you have not locked a rate yet.

March Pending Home Sales Rise, Market Recovering

Pending home sales increased in March and are well above a year ago, another signal the housing market is recovering, according to the National Association of Realtors®.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 4.1 percent to 101.4 in March from an upwardly revised 97.4 in February and is 12.8 percent above March 2011 when it was 89.9.  The data reflects contracts but not closings.

The index is now at the highest level since April 2010 when it reached 111.3.

Lawrence Yun, NAR chief economist, said 2012 is expected to be a year of recovery for housing.  “First quarter sales closings were the highest first quarter sales in five years.  The latest contract signing activity suggests the second quarter will be equally good,” he said.

 “The housing market has clearly turned the corner.  Rising sales are bringing down inventory and creating much more balanced conditions around the county, which means home prices will be rising in more areas as the year progresses,” Yun said.

The PHSI in the Northeast slipped 0.8 percent to 78.2 in March but is 21.1 percent above March 2011.  In the Midwest the index declined 0.9 percent to 93.3 but is 16.9 percent higher than a year ago.  Pending home sales in the South rose 5.9 percent to an index of 114.1 in March and are 10.6 percent above March 2011.  In the West the index increased 8.7 percent in March to 108.0 and is 9.0 percent above a year ago.

This Week's Market Commentary

Monday’s bond market has opened in positive territory due to a weak opening in stocks. The major stock indexes are reacting negatively to renewed concerns about the European economy and debt issues.

This has the Dow down 131 points and the Nasdaq down 47 points. The bond market is currently up 13/32, which should improve this morning’s mortgage rates by approximately .125 of a discount point from Friday’s early pricing.

There is nothing of relevance scheduled for release today, leaving bonds to be driven by stock movement. This is good news at the moment with the stock markets posting sizable losses as it helps make bonds more appealing to investors. If the major stock indexes extend this morning’s losses, we may see improvements to mortgage rates during afternoon hours today.

The rest of the week is extremely active with six relevant economic reports in addition to another FOMC meeting and two fairly important Treasury auctions. The economic reports range from low importance to extremely high importance with the majority of them falling between. Therefore, it is likely that we will see a fair amount of movement in mortgage pricing over the next several days.

The Conference Board will kick off the week’s events by posting April’s Consumer Confidence Index (CCI) late tomorrow morning. This index is a key indicator of future spending by consumers. The group surveys 5000 consumers from across the country about their personal financial situations. If sentiment is strong or rising, it is believed that consumers are more apt to make large purchases in the near future. However, if they are concerned about issues such as job security and savings, they will probably delay making large purchases. The latter is better for the bond market and mortgage rates because the expected slowdown in spending would keep inflation and economic growth concerns to a minimum. But, a sizable increase could hurt the bond market, pushing mortgage rates higher tomorrow. It is expected to show a reading of 69.5, which would be a decline from March’s 70.2 reading. The lower the reading, the better the news for mortgage rates.

March’s New Home Sales will also be released late tomorrow morning. It gives us an indication of housing sector strength and mortgage credit demand, but is the week’s least important report. Unless it varies greatly from analysts’ forecasts, I am not expecting the data to cause much movement in mortgage rates. Analysts are currently forecasting an increase in sales of newly constructed homes.
Overall, look for plenty of movement in the financial markets and mortgage rates several days this week. Wednesday will likely be the most important day of the week with the FOMC meeting, press conference and fairly important Durable Goods data, but we may also see noticeable changes to rates Friday after the GDP is posted. If this week’s reports reveal weaker than expected economic conditions, the bond market could extend its rally and mortgage rates should fall for the week.

Jobles Claims Fall to 386,000

Weekly initial jobless claims are on a roller coaster once again.

About 386,000 people filed for their first week of jobless claims last week, according to the Labor Department. While that marked a decrease of 2,000 claims from the week before, it was only because the previous week's number was revised higher than originally reported.

It was also much higher than the 375,000 claims economists had expected.

Initial claims are considered a key measure of the strength of the job market. When they fell to four-year lows a couple months ago, it was seen as an encouraging sign that layoffs were waning and companies were hiring more workers.

But now initial claims are back at higher levels, adding to fears that the job market's recent gains may be fizzling. Indeed, the Labor Department's monthly jobs report showed employers added only 120,000 jobs in March, a significant slowdown from the 240,000 jobs added just a month earlier.

Could that sluggish momentum continue?

Economists surveyed by CNNMoney expect the economy to add an average of 162,000 jobs per month from now until the end of the year -- barely enough to keep up with population growth. They predict the unemployment rate will fall to 8%, not much of an improvement from the current 8.2% rate.

This Week's Market Commentary

This week brings us the release of five economic reports that are relevant to mortgage rates, the first being the most important one. It will be posted early tomorrow morning when the Commerce Department releases March’s Retail Sales data. This piece of data gives us a measurement of consumer spending levels, which is very important because consumer spending makes up over two-thirds of the U.S. economy.
Forecasts are calling for a 0.3% increase in sales last month. If we see a larger increase in spending, the bond market will likely fall and mortgage rates will rise as it would indicate consumers are spending more than thought, fueling economic growth. However, a weaker than expected reading could push bond prices higher and mortgage rates lower tomorrow.

March’s Housing Starts is the next report, coming early Tuesday morning. It gives us a measurement of housing sector strength and mortgage credit demand by tracking starts of new home construction and the number of permits issued for future starts. This data usually doesn’t cause much movement in mortgage pricing unless it varies greatly from forecasts. It is expected to show a slight increase in construction starts of new homes. Good news for the bond market and mortgage rates would be a decline in home starts, indicating housing sector weakness.

March’s Industrial Production data will be posted at 9:15 AM ET Tuesday. It gives us a measurement of output at U.S. factories, mines and utilities, translating into an indication of manufacturing sector strength. Current forecasts are calling for an increase in production of 0.2%. This data is considered to be only moderately important to rates, so it will take more than just a slight variance to influence bond trading and mortgage pricing. Signs of manufacturing sector strength are considered negative news for mortgage rates.

Thursday has the remaining two reports scheduled, starting with March’s Existing Homes Sales numbers from the National Association of Realtors at 10:00 AM ET. This report also gives us an indication of housing sector strength and mortgage credit demand. It is considered to be moderately important to the markets, but can influence mortgage pricing if it shows a sizable variance from forecasts. Ideally, the bond market would like to see a drop in home resales because a soft housing sector makes a broader economic recovery difficult. Analysts are expecting to see an increase in sales between February and March. The larger the increase, the worse the news for bonds and mortgage rates.

The final report of the week will also be posted late Thursday morning when the Conference Board releases their Leading Economic Indicators (LEI) for March. This data attempts to measure economic activity over the next three to six months. This is considered to be a moderately important report, so we may see a slight movement in rates as a result of this data. It is expected to show an increase of 0.2%, meaning it is predicting slight growth in economic activity over the next several months. A decline would be considered good news for the bond market and could lead to slightly lower mortgage rates, assuming the housing report doesn’t show a significant surprise.

Overall, it will likely be a moderately active week for mortgage rates. However, unlike many weeks, the most important news comes during the early part of the week. Friday appears to be the best candidate for least active day, but Wednesday may also be fairly quiet. The stock markets will also influence bond trading and mortgage pricing this week as we get more corporate earnings releases. In other words, I expect to see only small changes to mortgage rates, but see them each day. At least once we get past tomorrow’s data.

When Will the Fed Hike Interest Rate?

Federal Reserve officials are more talkative than ever, making roughly 20 public appearances last week.

And while all the noise coming from "hawks" and "doves" could give you a case of Fed fatigue, there's one point both sides are hammering home: Forget the central bank's forecast for raising interest rates in 2014. At this point, anything could happen.

In its last policy statement, the Fed said it expected to keep interest rates at record lows "at least through late 2014." But not everyone on the voting committee agreed with that statement.

This week, several "hawks" -- members concerned about higher inflation -- have been speaking out again.

Narayana Kocherlakota, president of the Minneapolis Fed, gave two speeches this week, arguing for the Fed to pull back sooner rather than later.

He predicts the unemployment rate will continue to fall and inflation will start trending higher, making it the wrong time for the Fed to be pumping more money into the system.

Instead, he said, his colleagues may have to raise rates as early as this year.

“I see no need for additional accommodation at this time, and I believe that conditions will warrant raising rates well before the end of 2014," he said in remarks in White Bear Lake, Minn. on Thursday afternoon.

This Week’s Market Commentary

Monday’s bond market has opened in positive territory following early stock weakness. As expected, the stock markets are showing sizable losses as they react for the first time to Friday’s Employment numbers. The Dow is currently down 153 points while the Nasdaq has lost 40 points. The bond market is currently up 7/32, which with Friday’s strength after pricing was issued, should improve this morning’s mortgage rates by approximately .250 of a discount point.

Worth noting is that this morning’s early selling has brought the Dow below 13,000 again. It is early in the day and a lot can happen between now and closing, but closing and staying below 13,000 should bode well for the bond market and mortgage rates. That was a threshold that was difficult to cross, so giving it up could signal further stock losses in the immediate future. This would create a flight-to-safety scenario that would likely bring funds from stocks into bonds.

There is no relevant economic news scheduled for today or tomorrow. The rest of the week brings us the release of five economic reports that are relevant to mortgage rates, in addition to a couple of Treasury auctions that have the potential to be influential on the bond market and mortgage pricing. Corporate earnings season also kicks off this week, which will be instrumental in stock market direction and possibly mortgage rate movement.

The first report of the week comes Wednesday afternoon when the Federal Reserve will post its Fed Beige Book report at 2:00 PM ET. This report is named simply after the color of its cover and details economic conditions throughout the U.S. by Federal Reserve region. Since the Fed relies heavily on the contents of this report during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any significant surprises. Unexpected signs of strong economic growth or rising inflation would be considered negative for bonds and mortgage rates. Slowing economic conditions with little sign of inflationary pressures would be considered favorable for bonds and mortgage pricing.

Overall, look for the most movement in rates the latter part of the week due to the Producer and Consumer Price Indexes being released and the two Treasury auctions that are scheduled, but this morning was a good start. There is also a high probability that the stock markets will also influence bond trading and mortgage rates due to earning releases that could disappoint the markets. I am expecting it to be an active week for the mortgage market, so please maintain contact with your mortgage professional if still floating an interest rate.

Disappointing Jobs Report Revives Talk of Fed Easing

March’s disappointing jobs report shows the reversal of warm weather hiring, but also some troubling trends that are already sparking talk of more Federal Reserve easing.

The 120,000 nonfarm payrolls added in March were well below the 203,000 expected, but the unemployment rate fell to 8.2 percent from 8.3 percent.

February’s payrolls growth was revised higher to 240,000 from 227,000, but the January jobs number was revised lower by 9,000 to 275,000.

In March, manufacturers added 37,000 jobs, while jobs in the construction industry fell by 7,000 and temporary workers, an important barometer, dropped by 7,500.

“It’s in part a payback for warm weather. You see that in the construction and retail side. The labor force dropped, and that’s why the unemployment rate went down. Here, in a strong economy, you’re supposed to be encouraged by people coming back to the labor force because they’re expecting to get jobs,” said David Ader, chief Treasury strategist at CRT Capital.

After the 8:30 a.m. ET report, buyers rushed into the bond market, driving yields lower in a holiday-shortened session. The 10-year was yielding 2.07 percent, off from its session high yield of 2.225 percent.

“We’re tweaking the data, so have the odds just gone more in favor of (Fed) easing? Absolutely,” said Ader.

This Week's Market Commentary

This week brings us the release of three monthly economic reports in addition to the minutes from the most recent FOMC meeting. While three reports is usually not much of a concern, two of the week’s three are considered to be highly important to the markets and mortgage rates. Thrown in the fact that this is a holiday-shortened trading week and we have the mix for a very interesting week.

The first report comes late tomorrow morning when the Institute for Supply Management (ISM) will release their manufacturing index. This index gives us an important measurement of manufacturer sentiment by surveying trade executives and is one of the more important of this week’s data. A reading above 50 means more surveyed executives felt business improved during the month than those who said it had worsened. This month’s report is expected to show a reading of 53.0, which would be a decline from February’s reading of 52.4. This means that analysts think business sentiment slipped from last month’s level. That would be fairly good news for the bond market and mortgage rates. A noticeable decline would be favorable for rates while an increase would be negative.

February’s Factory Orders will be released early Tuesday morning. This data is similar to last week’s Durable Goods Orders report, except it includes orders for both durable and non-durable goods, giving us a measurement of manufacturing sector strength. It is also the least important of this week’s reports. Unless it varies greatly from forecasts of a 1.4% increase, I suspect that it will be a non-factor in the mortgage market.

The next important event comes Tuesday afternoon when the Fed releases the minutes of their last FOMC meeting. Market participants will be looking at them closely. They give us insight to the Fed’s current thought process and individual Fed member opinions. Any surprises in the 2:00 PM ET release, particularly about inflation or the likelihood of a Fed move to boost economic activity, could cause afternoon volatility in the markets Tuesday and possible changes in mortgage pricing.
Wednesday doesn’t have any economic data scheduled for release from a government agency or reliable source. There are a couple of private sector employment-related reports being posted, but they are not considered highly important to the bond market or mortgage rates. These reports have not been accurate in predicting results of government reports, so they usually do not have much of an impact on bond trading or mortgage pricing. We do see some reaction to them if they reveal a surprisingly significant indication of employment strength or weakness. However, I don’t believe they deserve much concern or attention in regards to mortgage pricing.

The biggest news of the week will come early Friday morning when the Labor Department posts March’s Employment report, giving us the U.S. unemployment rate and the number of jobs added or lost during the month. This is an extremely important report to the financial and mortgage markets. It is expected to show that the unemployment rate remained at 8.3% and that approximately 200,000 payrolls were added during the month. A higher unemployment rate and a smaller than expected payroll number would be good news for bonds and would likely push mortgage rates lower Friday morning because it would indicate weakness in the employment sector of the economy.

Overall, I think it is going to be an active week for the mortgage market. The most important day is Friday, but not only because the almighty monthly Employment report is being posted. Friday is Good Friday, meaning the stock markets will be closed. However, due to the release of the Employment report, the bond market will be open until noon ET Friday. This means that bond trading will take place without the influence of stock gains or losses. Tomorrow is also going to be a big part of whether rates fall or rise for the week, so please maintain contact with your mortgage professional if still floating an interest rate.

Growth Diminishes Need for Easing: Fed's Lacker

A top Federal Reserve official on Friday said it would be difficult to argue for more monetary policy easing if U.S. economic growth is between 2 and 3 percent this year, as he predicts.

"If we get growth about what I'm expecting, about what a lot of people are expecting ... I don't see where the rationale for further easing is going to come from," Richmond Fed President Jeffrey Lacker said on CNBC television, adding the country could see 3 percent growth in 2013.  In January, the U.S. central bank forecast GDP growth of 2.2 to 2.7 percent for this year, down from a previous forecast of 2.5 to 2.9 percent. For 2013, it forecast growth of 2.8 to 3.2 percent.

Lacker, the lone dissenter from Fed's last two policy statements, said there is a "good chance" the unemployment rate will fall from 8.3 percent currently to below 8 percent by next year. Lacker added that he was cautious about the improving labor market. "You have to keep in mind the possibility that things could slow down a bit, but I've been heartened by the recent numbers."

Philadelphia Fed President Charles Plosser, who like Lacker is known as a policy hawk, expects the jobless rate to fall below 8 percent this year. He told Nightly Business Report it will take another two to three years for the rate to dip below 6 percent.  "It may be 6 percent is the new full employment rate going forward, but that may take another couple of years," said Plosser, according to a transcript of the interview.

Lacker, turning to inflation, said the country is in "reasonably good shape" despite the rise in oil prices.