This week brings us the release of five relevant economic reports for the markets to digest with two of those reports being much more important than the rest. In addition to the factual reports, we also have another FOMC meeting to work around this week. This leads me to believe that we will see another active week for mortgage rates.
The first data comes early tomorrow morning when September’s Personal Income and Outlays report will be posted. This data gives us an indication of consumer ability to spend and current spending habits. It is important to the markets because consumer spending makes up two-thirds of the U.S. economy. Rising income generally indicates that consumers have more money to spend, making economic growth more of a possibility. This is bad news for the bond market and mortgage rates because it raises inflation concerns, making long-term securities such as mortgage related bonds less attractive to investors. Analysts are expecting to see a 0.3% increase in income and a 0.4% rise in spending.
Tomorrow’s second release will come from the Institute for Supply Management (ISM), who will post their manufacturing index at 10:00 AM ET. The index measures manufacturer sentiment, which is important because it gives us an indication of manufacturing sector strength. It is considered to be one of the more important reports we see each month. Tomorrow’s release is expected to show a reading of 53.6, meaning that sentiment fell slightly from September’s level. A smaller than expected reading would be good news for bonds and likely lead to lower mortgage rates tomorrow.
Wednesday’s only relevant economic data is September’s Factory Orders report. This report is similar to last week’s Durable Goods Orders release except it includes orders for both durable and non-durable goods. It is expected to show a 0.6% increase in new orders from August’s level. A smaller than forecasted increase would be good news for the bond market and mortgage rates while a larger than expected rise is bad news and could push rates slightly higher Wednesday morning.
This week’s FOMC meeting is a two-day meeting that begins Tuesday and adjourns Wednesday afternoon. There is no possibility of the Fed changing key short-term interest rates this week. But market participants will be looking at the post-meeting statement for any indication of when the Fed may make a move, particularly to help boost economic activity. The meeting will adjourn at 2:15 PM ET Wednesday, so look for any reaction to the statement to come during afternoon hours. Generally speaking, any hint that they may need to make a rate increase relatively soon would be negative news for bonds and lead to higher mortgage rates. The markets will actually be looking for news of another round of debt purchases by the Fed. If they do announce a sizable purchase program of government or mortgage debt Wednesday, we could see the bond market rally and mortgage rates move noticeably lower.
The last report of the week is the most important. Friday brings us the release of one of the most important monthly reports- the Employment report. The Labor Department will post October’s employment stats early Friday morning. The report is comprised of many statistics and readings, but the most important ones are the unemployment rate, the number of new jobs added or lost during the month and average hourly earnings. Current forecasts call for no change in the unemployment rate to keep the national unemployment rate at 9.6%, an increase in payrolls of approximately 45,000 and a 0.1% increase in average earnings. Weaker than expected readings should renew concerns about the labor market and rally bonds enough to improve mortgage rates, especially if the stock markets react poorly to the news.
Overall, the single most important day is Friday but tomorrow’s data is also considered to be highly important. In addition to the economic reports and the FOMC meeting, I believe stocks will continue to experience volatility that will also impact bond trading. The key to the week will be Friday’s employment numbers or the FOMC statement, but any significant swings in the stock markets may also influence whether mortgage rates close the week higher or lower than tomorrow morning’s levels.
If I were considering financing/refinancing a home, I would…. Lock if my closing was taking place within 7 days… Float 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…