Brief note from the desk of Miguel
Velazco Sr. MBA
Week of: Monday, July 30, 2012
Present Market Conditions
Monday’s bond market has opened in positive territory following a flat open in
stocks. The major stock indexes are relatively calm considering Friday’s rally
that pushed the Dow higher. and we will still likely see an increase in this
morning’s mortgage rates due to weakness in bonds late Friday.
There is no relevant economic data scheduled for release today. Actually, today
is the only day of the week that we don’t have something to watch or be
concerned with. With the stock markets currently showing minor gains, concerns
about them extending Friday’s rally have subsided, at least for the time being.
This has helped buoy bonds and erase part of Friday’s late selling in bonds
that cause higher rates on Friday. As long as the major stock indexes remain
near current levels, the threat of an intra-day upward revision to mortgage
rates should stay minimal.
This week brings us the release of six economic reports that may impact
mortgage rates, some of which are considered to be highly influential to the
markets and mortgage pricing. The first is 2nd Quarter Employee Productivity
and Costs data early tomorrow morning. It will give us an indication of
employee output per hour. High levels of productivity are believed to allow the
economy to grow without fears of inflation. I don't see this being a big mover
of mortgage pricing, but it does have the potential to affect bond trading if
it shows a significant surprise. Analysts are currently expecting to see an
increase in productivity of 0.5%. A stronger than expected productivity reading
could help improve bonds, possibly leading to slightly lower mortgage rates
Income and Outlays data will also be posted at 8:30 AM ET tomorrow morning.
This report helps us measure consumer ability to spend and current spending
habits. If it shows sizable increases, bond selling could lead to higher
mortgage rates. Current forecasts are calling for an increase of 0.4% in income
and a 0.1% rise in spending. A larger than expected increase in income means
consumers have more funds to spend, which is not favorable to bonds because
consumer spending makes up over two-thirds of the U.S. economy. Ideally, we
would like to see declines in spending and income, but the smaller the increase
in each, the better the news for mortgage rates.
The third report of
the day is the Conference Board’s Consumer Confidence Index (CCI) for July at
10:00 AM ET. This index measures consumer sentiment, giving us an idea of
consumer willingness to spend. If consumers are more confident in their own
financial situations, they are apt to make large purchases in the near future.
This is important because consumer spending makes up such a large portion of
our economy. If the CCI reading is weaker than expected, meaning that consumers
were less confident than thought and likely will delay making a large personal
purchase, we may see bond prices rise and mortgage rates drop tomorrow morning.
Current forecasts are calling for a reading of 61.0, which would be a lower
reading than June's 62.0 and indicate consumers are becoming less comfortable
with their finances.
Overall, I am expecting to see an extremely active week for mortgage rates. I
think that the most important day is either going to be Wednesday due to the
FOMC adjournment and the ISM index being posted or Friday with the release of
the Employment report. We also have the European version of the FOMC taking
place Thursday, so add that and stock swings to our list of potential market
movers for the week. I suspect this will be an active week for real estate.
I can always be reached at:
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