Mortgage California Blog

This Week’s Market Commentary

May 16th, 2011

This week brings us the release of four pieces of relevant economic news in addition to the minutes from the most recent FOMC meeting.

None of the economic reports are considered to be highly important to the markets or mortgage rates, but they do carry enough significance to influence mortgage rates if they show a wide variance from forecasts.

Nothing of importance is scheduled for today, so look for the stock markets to be a major influence on bond trading and mortgage pricing. If the stock markets open the week with sizable gains, bonds will likely suffer and mortgage rates will probably move higher tomorrow. However, more stock weakness could translate into slightly lower rates tomorrow. The mortgage market took a small turn for the worse Friday afternoon, so unless your lender revised pricing higher late Friday you may have a slight increase in rates waiting for you.

The week’s first data comes early Tuesday morning when April’s Housing Starts will be posted. This data measures housing sector strength and mortgage credit demand by tracking newly issued permits and actual starts of new home construction. It is expected to show an increase in new starts from March’s readings. Since this report is not considered to be of high importance to the bond market, it likely will have little impact on mortgage rates unless it varies greatly from forecasts.

The second report of the day is April’s Industrial Production at 9:15 AM ET. It measures manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to show a 0.5% increase in production, indicating that manufacturing activity is growing.

A smaller than expected increase in output would be good news for the bond market and mortgage rates because it would indicate that the manufacturing sector is not as strong as thought. This report is equally important to the markets as the earlier housing report, so they both will likely need to show unexpected strength or weakness for them to cause a sizable movement in mortgage rates.

Wednesday’s only relevant release is the minutes of the last FOMC meeting. Market participants will be looking for how Fed members voted during the last meeting and any comments about inflation concerns in the economy and economic growth. The goal is to form opinions about when the Fed may make a move to key short-term interest rates. Since the minutes will be released at 2:00 PM ET, if there is a market reaction to them it will be evident during afternoon trading.

The National Association of Realtors will give us their Existing Home Sales report late Thursday morning. This data tracks resales of homes in the U.S. during April, giving us a measurement of housing sector strength. This type of data is relevant because a weakening housing sector makes a broader economic recovery less likely. Current forecasts are calling for a small increase in home sales between March and April. Ideally, the bond market would prefer to see a decline, indicating further housing sector weakness. A large increase in sales could lead to bond weakness and a small increase in mortgage rates Thursday morning.

The last data also comes late Thursday morning with the release of April’s Leading Economic Indicators (LEI). This Conference Board report attempts to measure economic activity over the next three to six months. It is expected to show no change from March’s reading, meaning that economic activity is likely to remain flat over the next few months. A decline would be good news for the bond market and mortgage rates, while an increase could cause mortgage rates to inch higher Thursday.

Overall, it looks like we may see a fairly calm week in mortgage rates unless something unexpected happens or the stock markets make a big move upward or downward. I can’t really label one particular day as the most important one. If the stock markets remain fairly calm, I would guess the middle part of the week will probably be the most active for mortgage pricing. However, sizable gains or losses in the major stock indexes could influence bonds and mortgage rates more than this week’s economic data can.

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