March 18th, 2013
This week brings us the release of four monthly reports for the bond market to digest, but none of them are considered to be highly important. In addition to the economic reports, we also have a Fed-filled day in the middle part of the week. With none of the reports likely to move the markets, we could see a couple fairly calm days in mortgage rates.
There is nothing of importance scheduled for release Monday, so look for the stock markets and overseas news to be the biggest influences on bond trading and mortgage rates. News about a potential bailout for Cyprus and some unprecedented requirements that are being considered could help push stocks lower Monday. As word spread about a potential tax on deposit accounts there, many people rushed ATM’s to get cash out over the weekend. Even though Cyprus’s President addressed the nation to calm fears, the news is expected to drag down international stock markets when they open for trading. That should bode well for the bond market as investors may look towards bonds as safety from any volatility. And what is good for the bond market is generally good news for mortgage shoppers.
Two of the week’s four reports that are scheduled give us insights into the housing sector. They begin early Tuesday morning when February’s Housing Starts will be posted. This report tracks construction starts of new housing. It doesn’t usually cause much movement in mortgage rates and is considered one of the less important reports we see each month. It is expected to show an increase in housing starts, indicating growth in the housing sector. Good news for the bond market and mortgage rates would be a sizable decline in new starts, but unless we see a large variance from forecasts the data likely will not lead to a noticeable move in mortgage pricing.
Wednesday is the day with several Fed events scheduled. They start with the 2:00 PM ET adjournment of the FOMC meeting that began Tuesday. It is widely expected that Mr. Bernanke and company will not change key short-term interest rates at this meeting, but there is rising concern in the market that the Fed may cut back their current bond-buying program (QE3) to help ease future issues. Any word on this topic either way could heavily influence the markets and mortgage rates.
Also worth noting is that the FOMC meeting is ending a little earlier than the traditional 2:15 PM because it is one of the meetings that will be followed by a press conference with Fed Chairman Bernanke. The meeting will adjourn at 2:00 PM while the press conference will begin at 2:30 PM and will probably lead to afternoon volatility in the markets and mortgage rates Wednesday. The Fed will also update their economic and monetary policy projections at 2:00 PM. Any significant revisions to the Fed’s outlook on unemployment, GDP growth or their timetable for keeping key rates at current levels will also cause volatility in the markets and mortgage rates.
February’s Existing Home Sales will be posted late Thursday morning by the National Association of Realtors. It will also give us a measurement of housing sector strength and mortgage credit demand. It is expected to reveal an increase in home resales, meaning the housing sector strengthened last month. Ideally, bond traders would prefer to see a decline in sales, pointing towards a still weakening housing sector. However, a small increase is expected, so it shouldn’t cause much alarm in the bond and mortgage markets. Bad news would be a sizable increase in sales, indicating that the housing sector is gaining momentum. That could be troublesome for the bond market and mortgage rates because housing and unemployment were the two biggest hurdles the economy had to overcome. Recent reports have some traders much more optimistic about the employment sector, so overwhelmingly strong housing news could lead to another rise in mortgage rates.
The Conference Board will post its Leading Economic Indicators (LEI) for February late Thursday morning also. This index attempts to measure economic activity over the next three to six months. It is considered to be moderately important, but likely will not have a significant impact on mortgage rates. Current forecasts are calling for a 0.5% increase, meaning it is predicting that economic activity will likely expand moderately in the coming weeks. A smaller than forecasted rise, or better yet a decline would be considered good news for the bond market and mortgage rates.
Overall, I am considering Wednesday as the key day of the week with the Fed events scheduled, but Monday could be interesting if the Cyprus news does cause stock selling when our markets open in the morning. The least important day will probably be Friday, however, we could see movement in rates any day. It appears that the recent stock rally could be losing steam and if that is true we may see funds shift back into bonds in the near future. Accordingly, I am shifting to a more optimistic stance on rates- at least for the time being.