Weekly Rate Lock Advisory

Rate Lock Advisory - Sunday Jul. 11th

This week brings us the release of six important economic reports for the bond market to digest in addition to the minutes from the last FOMC meeting and two relevant Treasury auctions. Several of the economic reports are considered to be of high importance, meaning we will likely see volatility in the financial markets and mortgage pricing over the next several days. There are also some heavily watched corporate earnings releases scheduled for the stock markets this week that can influence bond trading and therefore, mortgage pricing.

The first data of the week is May's Goods and Services Trade Balance report early Tuesday morning, which measures the size of the U.S. trade deficit. This data is not considered to be of high importance to the bond market and will not likely have an impact on mortgage rates. However, if it does vary greatly from analysts' forecasts of a $39.5 billion deficit, we may see some movement in bond prices and possi bly a slight change in mortgage pricing.

The first of the two important Treasury auctions will be held Tuesday when 10-year Notes will be sold. That sale will be followed by a 30-year Bond auction Wednesday. These sales can influence market trading in bonds and possibly affect mortgage rates. If the sales are met with a strong demand from investors, particularly Tuesday's sale, we should see afternoon improvements in bonds that could lead to downward revisions to mortgage rates. However, if concern about the amount of debt that is being sold keeps buyers on the sidelines, we may see bonds fall after results are posted at 1:00 PM ET and mortgage rates move higher those days.

June's Retail Sales report will be posted early Wednesday morning. This data is considered to be of high importance because it measures consumer spending. Consumer spending makes up two-thirds of the U.S. economy, so any related data is watched closely. The Commerce Department is expected to say that sales at retail establishments fell 0.2% last month. A larger than expected decline in sales could help fuel a bond rally and lead to lower mortgage rates because it would mean that the economy is likely not as strong as thought.

Also worth noting about Wednesday is the afternoon release of the minutes from the last FOMC meeting. There is a possibility of the markets reacting to them following their 2:00 PM ET release, especially if they show some divisiveness by its members during discussion and voting at the last meeting or give any indication of the Fed's possible next move with monetary policy.

There are two relevant reports scheduled for Thursday. The first is June's Producer Price Index (PPI). It is a very important release because it measures inflationary pressures at the producer level of the economy. It is expected to show a 0.1% decline in the overall reading and a 0.1% increase in the core data readi ng. The core reading is the more important of the two because it excludes more volatile food and energy prices. The bond market should react quite favorably if we get weaker than expected readings, but a larger than expected rise in the core reading could send mortgage rates higher Thursday.

June's Industrial Production data is the second report of the day. This data measures output at U.S. factories, mines and utilities, giving us an indication of manufacturing sector strength. It is expected to show no change in the level of production, indicating that the manufacturing sector remained stable during the month. That would basically be good news for bonds, however, an unexpected decline would likely help improve rates if the PPI showed favorable results.

The remaining two reports will come Friday morning, one of which is arguably the single most important monthly report for the bond market. That one is June's Consumer Price Index (CPI) during early morning trading, which is a mirror of Thursday's PPI with the exception that the CPI measures inflation at the more important consumer level of the economy. Analysts have forecasted no change in the overall index and a 0.1% rise in the core data. The core data is considered to be the key reading because it gives us a more stable measure of inflation. Higher than expected readings could raise inflation fears and push mortgage rates higher Friday, while readings that fall short of forecasts could lead to lower rates Friday.

The second report Friday morning and the final of the week is the University of Michigan's Index of Consumer Sentiment. This index is released in a preliminary form each month and then followed up two weeks later with a final reading. The preliminary reading for July will be posted late Friday morning and is expected to fall from June's final reading of 76.0. This would indicate that consumers were less co mfortable with their own financial situations this month than last month. It is believed that if consumers are confident in their own finances, they are more apt to make large purchases in the near future. And with consumer spending making up two-thirds of our economy, investors pay close attention to reports such as these.

Also worth noting is the fact that Monday kicks off the corporate earning reporting season when Alcoa posts their quarterly results. Market participants are anxiously waiting for these earnings reports to see just how the economy is affecting earnings. Just as important as this past quarter's results are their forward-looking estimates. If revenue, earnings and projections from the big-named companies exceed expectations, stocks will likely rally. This would make bonds less appealing to investors and lead to bond selling. But if results are weaker than expected, indicating that the economy is stifling earnings, bonds will be more attractive to investors as stocks slide. That could help boost bond prices and help lower mortgage rates.

Overall, it is difficult to try to label one particular day as the most important this week. It is easy to say the least important will likely be Monday, but every other day has important data or other events that can cause significant movement in the markets and mortgage rates. The single most important report for the bond market is the CPI Friday morning, but the data on Wednesday and Thursday are not far behind. The week's corporate earnings also have the potential to heavily influence bond trading and mortgage rates via stock market swings. Therefore, it is highly recommended to maintain fairly constant contact with your mortgage professional this week if still floating an interest rate.

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 pla ce 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.

©Mortgage Commentary 2010



This is not the opinion of Brad Bergamini, Realty Executives Northern Arizona or any of its affiliates.  This post is for informational purpose only and is not guaranteed and does not render as legal advice.  Buying and selling Real Estate in Arizona or Prescott Arizona is a serious task and should be consulted with personally with Realtor or Real Estate Attorney.  Please visit my website for contact information