This week brings us six pieces of economic data for the bond market to digest. The first report is scheduled for release early Tuesday morning with the release of July’s Producer Price Index (PPI). This index is considered to be an indicator of inflation at the producer level of the economy. There are two readings in the report- the overall index and the core da ta reading. The core data is more important because it excludes more volatile food and energy prices that can change significantly from month to month. Current forecasts call for an increase of 0.3% in the overall and 0.2% in the core data reading. A larger increase may raise inflation concerns and push mortgage rates higher Tuesday morning. If it reveals a smaller than expected increase, we could see mortgage rates improve as a result.

There are three reports due to be posted Wednesday. The most important of the three is July’s Consumer Price Index (CPI) at 8:30 AM. The CPI is one of the most important reports we see each and every month. It measures inflation at the consumer level of the economy. As with Tuesday’s PPI, there are two readings in the report- the overall index and the core data reading. Current forecasts call for an increase of 0.4% in the overall and 0.3% in the core data reading. Smaller than expected increases should lead to a bond rally and lower mortgage rates. However, stronger than expected readings will likely cause a spike in mortgage pricing.

At 9:15 AM, Industrial Production data for July will be posted. This report gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is considered to be of fairly high importance and may cause movement in mortgage rates. Analysts are currently expecting to see a 0.5% increase in production. A higher level of output could lead to higher mortgage rates Wednesday, while a weaker than expected figure should help push rates lower, assuming the CPI doesn’t reveal any surprises.

Also scheduled for release Wednesday is July’s Housing Starts data. This report gives us an indication of housing sector strength and mortgage credit demand. However, it isn’t considered to be of high importance to the bond market or mortgage pricing and usually doesn’t cause much movement in mortgage rates unless it varies grea tly from forecasts. This report is the least important of the week’s six reports.

The Conference Board will release its Leading Economic Indicators (LEI) for July at 10:00 AM Thursday. This index attempts to measure economic activity over the next three to six months. A higher than expected reading is bad news for the bond market because it indicates that the economy may be strengthening. However, a weaker than expected reading means that the economy may slow in the near future, making stocks less appealing to investors. This also eases inflation concerns in the bond market and should lead to lower mortgage rates Thursday.

Friday morning, the University of Michigan will release its Index of Consumer Sentiment for August at 9:45 AM. This index gives us a measurement of consumer willingness to spend. If confidence is rising, then consumers are more apt to make large purchases. This helps fuel consumer spending and economic growth. A drop in confidence will probab ly boost bond prices, leading to lower mortgage rates. If the index rises, indicating that confidence is rising and spending is likely to continue, we may see mortgage rates move higher Friday.

Overall, look for the most movement in bond prices and mortgage rates Tuesday or Wednesday due to the importance of the PPI and CPI reports. We have seen bond prices fall from recent highs, pushing the yield on the benchmark 10-year Note back near 5.00% (currently 4.97%). I still feel there is more likelihood of the bond market moving lower than much higher (pushing yields and mortgage pricing higher). This makes it prudent to consider locking an interest rate if closing in the immediate future. If we get stronger than expected results in the PPI and CPI releases, I fear that we may see mortgage rates test recent highs fairly quickly. If those reports do ease inflation concerns, I will likely be shifting to a float recommendation. But, the risk versus rew ard comparison still heavily favors the risk side in my opinion, therefore, I am holding the lock recommendations for the time being.

If I were considering financing/refinancing a home, I would…. Lock if my closing was taking place within 7 days… Lock if my closing was taking place between 8 and 20 days… Lock if my closing was taking place between 21 and 60 days… Float if my closing was taking place over 60 days from now… This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

a la mode

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This week brings us the release of three pieces of economic data, but one of them is not considered to be of high importance. The biggest event of the week will be the Federal Open Market Committee (FOMC) meeting Tuesday. With so much uncertainty surrounding this Fed meeting, expect to see plenty of volatility after its results are announced. We may also see s ome pressure in bonds tomorrow as investors prepare for the meeting, but most traders will make their moves post-meeting Tuesday.

There is no relevant data scheduled for release tomorrow. The first piece of economic data of interest this week will be posted Tuesday morning. Employee Productivity and Costs data for the second quarter will give us an indication of employee output. 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, especially since it is the same day as the FOMC meeting. Analysts are currently expecting to see an increase in productivity of 1.1%. A higher than expected reading could help improve bonds, but until we get the results of the FOMC meeting, we will likely see little movement in mortgage rates.

The FOMC meeting will adjourn at 2:15 PM Tuesday. Usually, the post-meeting comments seem to have more of an influence on the markets than the rate adjustments themselves as the rate changes are quite often expected. However, this meeting is likely to be different. Many analysts are currently expecting the Fed to leave key short-term interest rates unchanged for the first time after 17 straight increases. There is a pretty good chance of this happening in my opinion, but just how the markets will react may surprise many. Any hint of a possible pause by the Fed has led to rallies in stocks and bonds over the past few months. If the Fed was to make that move at this meeting, the initial reaction will likely be positive for stocks and bonds. However, I believe that once reality sets in, stocks may have a negative reaction because the pause would underscore the concern that the economy is indeed slowing. Slower economic growth means weaker consumer spending and corporate earnings, which leads to stock market losses.

Bond traders will likely be relieved that the Fed is, at least temporarily, at ease with i nflation concerns. Since inflation erodes the value of a bond’s future fixed interest payments and drives bond prices lower (pushing mortgage rates higher), this news will likely be taken positively in the bond market. But traders will also be looking at the post-meeting statement for any indication of whether this is a temporary pause by the Fed or if more increases are likely in the near future. Generally speaking, a hint of more rate hikes in the future will be construed as an indication that inflation is still a concern and would likely drive bond prices lower and mortgage rates higher Tuesday afternoon and Wednesday.

There is also a possibility of Mr. Bernanke and friends making another quarter point rate hike. Unless they were to follow that move with an announcement that it would be the last increase for the immediate future, I would expect the markets to drop considerably and mortgage rates to spike higher. The Fed will eventually have to stop raising rates, but many already think they have gone too far. The goal of the rate hikes is to slow economic activity and control inflationary pressures. But there is also a need for a "soft landing" meaning that the effects of the increases come slowly rather than a "hard" slowdown that could put the economy into a recession. The jury cannot start debating that issue until the rate increases have stopped.

The big economic report of the week comes Friday morning with the release of July’s Retail Sales report. This data is very important to the financial markets and mortgage rates because it helps us measure consumer spending. Since consumer spending makes up two-thirds of the U.S. economy, any data related to it can cause a fair amount of movement in the markets. A smaller than expected increase would indicate that consumers are spending less than previously thought, potentially slowing the economy. This is good news for the bond market and mortgage rates as i t eases inflation concerns and makes long-term securities such as mortgage-related bonds more attractive to investors. Current forecasts are calling for an increase of 0.6%.

Also worth noting are two important Treasury auctions this week. The sale of 10-year Notes will be held Wednesday while 30-year Bonds will be sold Thursday. We often see some weakness in bonds ahead of the sales as the firms participating prepare for them. However, as long as they are met with decent demand from investors, the firms usually buy them back. This tends to help recover any presale losses. But, if the sales are met with a lackluster interest from investors- particularly international buyers, the bond market may move lower after the results are posted. Those results will be announced at 1:00 PM each sale day. If there will be revisions to mortgage rates because of the results, look for them to be made during afternoon trading Wednesday and/or Thursday.

Over all, I expect to see plenty of movement in the financial markets and mortgage pricing this week. The bond market is really at a difficult point to try and predict, especially with 10-year and 30-year auctions this week. The Fed meeting will have the biggest influence on bond trading and mortgage rates, but Friday’s sales data can also lead to significant changes in mortgage pricing. I am expecting to see Monday as the calmest day of the week, but I would strongly recommend maintaining constant contact with your mortgage professional the next few days.

If I were considering financing/refinancing a home, I would…. Lock if my closing was taking place within 7 days… Lock if my closing was taking place between 8 and 20 days… Lock if my closing was taking place between 21 and 60 days… Float if my closing was taking place over 60 days from now… This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

a la mode

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This week is packed with economic data for the financial and mortgage markets to digest. In addition, several of the reports are considered to be of extremely high importance to the financial and mortgage markets. This makes it quite possible that mortgage rates will show considerable movement again this week.

The first important report comes Tuesday morn ing when the Conference Board will post their Consumer Confidence Index (CCI). This index measures consumer sentiment, giving us an idea of consumer willingness to spend. This is important because consumer spending makes up two-thirds of the U.S. economy. If the CCI reading is weaker than expected, we may see bond prices rise and mortgage rates drop Tuesday. Current forecasts are calling for a reading of 104.8, which would lower number than June’s reading.

The Federal Reserve will release its Beige Book report Wednesday afternoon. This report is named simply after the color of its cover, but it is considered to be important to the Fed when determining monetary policy during their FOMC meetings. It details economic activity and conditions by region throughout the U.S. With Fed Chairman Ben Bernanke’s testimony last week, I don’t think we will see any significant surprises in this report, and therefore will likely not cause much movement in mortgage rate s Wednesday afternoon.

Thursday morning’s economic data will come from the Commerce Department when they will post June’s Durable Goods Orders at 8:30 AM ET. Current forecasts are currently calling for a gain of 1.7% after showing a slight loss in new orders during May. This data gives us an indication of manufacturing sector strength by tracking orders at U.S. factories for big-ticket items. These are products that are expected to last at least three years. A stronger than expected number may lead to higher mortgage rates Thursday morning. If it reveals a decline, mortgage rates should drop Thursday morning.

Friday’s first release is the 2nd Quarter Employment Cost Index (ECI) that measures employers’ costs for wages and benefits. It is considered to be an important measurement of wage inflation and can have a pretty big impact on the bond market and mortgage rates. If it shows a rapid increase, raising inflation concerns, the bond market may drop and mortgage rates rise.

Friday morning also brings us the release of the single most important report we see regularly. The quarterly Gross Domestic Product (GDP) is considered to be the best indicator of economic growth. It is the sum of all goods and services produced in the U.S. and usually has a great deal of influence on the financial markets. Current forecasts are estimating to see a 3.1% pace. A larger increase would probably boost stock prices and hurt bond prices, leading to higher mortgage rates. But a smaller increase would likely fuel a bond market rally.

Also being released Friday is the final revision to July’s University of Michigan Index of Consumer Sentiment. Unless we see a drastic revision to the preliminary estimate of 83.0, I think the markets will probably shrug this news off due to the importance of the GDP.

The week’s data is rounded off with two housing sector related releases Tuesday and Thursday, but I do n’t think they will have much of an impact on the bond market or mortgage rates. June’s Existing Home Sales will be posted Tuesday while New Home Sales will be released Thursday. I would expect that other reports or factors will drive bond trading and mortgage pricing more than these will.

Overall, this is another huge week for the bond market and mortgage rates. If we get weaker than expected economic results, we may see mortgage rates make another leg lower. However, stronger than expected results will likely lead to higher rates for the week. With the bond market near the bottom of its recent trading range, I am holding the lock recommendations for immediate and short-term periods. I suspect that we may see some profit taking by traders, which could drive bond yields and mortgage rates higher.

If I were considering financing/refinancing a home, I would…. Lock if my closing was taking place within 7 days… Lock if my closing was taking place between 8 an d 20 days… Float if my closing was taking place between 21 and 60 days… Float if my closing was taking place over 60 days from now… This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

a la mode

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Wednesday’s bond market opened in negative territory following the release of the CPI, but has since staged a rally to move into positive ground. The stock markets are showing significant gains with the Dow up 155 points and the Nasdaq up 27 points. The bond market is currently up 12/32, but this morning’s mortgage rates will still be higher by approximately .2 50 of a discount point due to weakness late yesterday. However, if the bond market can hold this morning’s gains, we should see afternoon improvements to mortgage rates of approximately .125 of a discount point.

This morning’s key economic report was June’s Consumer Price Index (CPI). The Labor Department reported that the overall reading rose 0.2%, as expected. The bad news was the core data reading that rose 0.3% compared to forecasts of a 0.2% rise. This indicates that core prices rose more than expected, which is bad news for the bond market. It led to the early weakness in bonds this morning.

Also released this morning was June’s Housing Starts report. This data gives us an indication of housing sector strength, but is not considered to be of high importance. It showed a much larger drop in new starts than was expected, but has had no impact on this morning’s mortgage rates.

The good news came from Fed Chairman Bernanke himself during his testim ony to the Senate Banking Committee. In his speech, he indicated that inflation was still a concern in the economy, but that economic weakness could ease those pressures. That, with other comments made, was construed to mean that the Fed might be ending its rate hike campaign in the near future. This helped rally stocks and bonds and led to reversal in the bond market this morning.

The markets are taking his words as quite favorable, which is somewhat justified. However, we have seen before where the translation was thought to indicate that the rate hikes were ending only to see bonds fall again once another theory became prominent in the market. My point is that today’s rally is based more on speculation than factual data. Therefore, we need to be very careful because rates will move higher quicker than they come down. It will take only a single statement by the right person, particularly a Fed member, to reverse this morning’s gains. Accordingly, I am holdin g the current lock/float recommendations. There is a decent possibility of seeing a slight improvement to mortgage rates this afternoon, but in my opinion not enough to justify floating and exposing yourself to overnight conditions and tomorrow’s possible pricing.

The only other report of any relevance scheduled for this week is June’s Leading Economic Indicators (LEI) at 10:00 AM tomorrow. This Conference Board index attempts to measure economic activity over the next three to six months. While it is not a factual report, it still is considered to be of relative importance to the bond market. It is expected to show a 0.2% increase, meaning that we may see a slight increase in economic activity over the next few months. A decline in the index would be good news for the bond and mortgage markets.

Also worth noting is tomorrow’s release of the minutes from the last FOMC meeting. There is a possibility of the markets reacting to them following th eir 2:00 PM ET release, especially if they show some divisiveness by its members when voting for the last increase to key short-term interest rates.

If I were considering financing/refinancing a home, I would…. Lock if my closing was taking place within 7 days… Lock if my closing was taking place between 8 and 20 days… Float if my closing was taking place between 21 and 60 days… Float if my closing was taking place over 60 days from now… This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

a la mode

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