Mortgage California Blog

This Week’s Market Commentary

September 2nd, 2013

Mortgage Market CommentaryThis week brings us the release of six pieces of economic data, with two of them considered to be highly important to the markets and mortgage rates. Adding to the significance of these reports is the fact that they will be the last versions before the FOMC meeting later this month that many believe will bring a reduction in the Fed’s current bond-buying program. The financial and mortgage markets will be closed today in observance of the Labor Day holiday, meaning we will not see new mortgage rates until Tuesday morning.

The first release of the week will come from the Institute for Supply Management (ISM), who will post their manufacturing index for August at 10:00 AM ET Tuesday. This index measures manufacturer sentiment and is expected to show a reading of 53.6, which would be a decline from July’s reading of 55.4. A reading below 50 is considered a recessionary sign because it means that more surveyed manufacturers felt business worsened during the month than those who felt it had improved. A larger decline in the index would likely cause selling in the stock markets and lead to an improvement in mortgage rates Tuesday as it would hint at manufacturing sector weakness.

July’s Goods and Services Trade Balance data will be posted early Wednesday morning, giving us the size of the U.S. trade deficit. It is expected to show a deficit of approximately $38.2 billion, which would be an increase from June’s $34.2 billion. However, I would consider this the least important of this week’s events, meaning it will likely have little impact on Wednesday’s bond trading or mortgage rates unless it varies greatly from forecasts.

The Federal Reserve will release its Beige Book report at 2:00 PM ET Wednesday. This report details current economic conditions in the U.S. by Federal Reserve regions. It is believed to be a key source of data when the Fed meets for their FOMC meetings and is usually released approximately two weeks prior to each meeting. If it reveals any significant surprises or changes from the previous release, we may see movement in the markets and mortgage pricing as analysts adjust their theories on the Fed’s next move when they meet September 17-18.

Thursday has two monthly or quarterly releases, but neither is considered to be highly important. The first is the revised 2nd Quarter Productivity numbers, which measures employee productivity in the workplace. Strong levels of productivity allow the economy to expand without inflation concerns. It is expected to show an upward change from the previous estimate of a 0.9% increase. Forecasts are currently calling for a 0.6% upward revision, meaning productivity was better than previously thought from April through June. This would technically be good news for the bond market and mortgage rates, but this data is considered to be only moderately important to the markets. Therefore, it will take a sizable variance from forecasts for this report to affect mortgage rates. Favorable news would be a sizable increase in productivity.

The second report of the day Thursday will come from the Commerce Department, who will post August’s Factory Orders data at 10:00 AM ET. This manufacturing sector report is similar to last week’s Durable Goods Orders release, but also includes orders for non-durable goods. It can impact the bond market enough to change mortgage rates if it varies from forecasts by a wide margin. Analysts are forecasting a decline of 3.7% in new orders, meaning manufacturing activity slowed considerably in August. This would be good news for the bond market and mortgage pricing, but I believe we will need to see a much larger decline for this report to create a noticeable improvement in rates.

The biggest news of the week and arguably the most important that we see monthly comes early Friday morning. The Labor Department will post the unemployment rate, number of new jobs added or lost and average hourly earnings for August at 8:30 AM ET Friday. The ideal scenario for the bond market and mortgage rates is rising unemployment, a drop in payrolls and earnings to fall slightly. Analysts are expecting to see that the unemployment rate remained at 7.4% and that 180,000 jobs were added during the month. Weaker than expected readings would signal softer employment sector growth than predicted and would be very good news for bonds and mortgage rates Friday. However, if we get noticeably stronger than expected numbers, mortgage rates will probably spike higher Friday.

The monthly employment report will take on even more significance this month than it usually does, which seems difficult to believe is even possible. But this is the last major employment sector reading before the next FOMC meeting and the Fed has partly targeted their tapering plans to growth in employment. If Friday’s report shows stronger than expected employment numbers, it may be enough for the Fed to take the first step in winding down their current bond buying program. On the other hand, unexpected weakness in the numbers could cause them to delay the tapering that many are expecting. So, besides just an employment sector reading, this month’s numbers will also help us predict the Fed’s move less than two weeks later. This doesn’t alter our wishes though regarding its results. Weaker numbers indicate economic weakness and raises the possibility of the Fed delaying their move, both of which are good news for the bond market and mortgage rates.

Overall, this is likely to be a highly active week for the financial markets and mortgage pricing. Friday is the key day with the Employment report but Tuesday could also be one of the more active days due to the ISM report that follows a three-day weekend. We also need to watch the Syria crisis as it could cause ripples in the world markets and here. Since Congress isn’t scheduled to be back in session to take up the matter until the following week, it may not have much of an impact on this week’s trading. However, if they do come back to session this week to address it, the markets will be focused on it also. Therefore, with so much scheduled and the potential for even more, I strongly recommend maintaining contact with your mortgage professional if still floating an interest rate and closing in the near future.

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