Present Market Conditions Mortgage Bonds begin the week in the same sideways pattern that began last Wednesday with no clear catalyst to move prices ahead of Wednesdays FOMC ( FED) monetary policy statement. In addition, the economic calendar is packed with a host of reports that will cover a broad array of the U.S. economy while the Treasury will be selling a total of $96B in 2, 5 and 7 year Notes. All are potential market movers. Expectations The Feds scheduled two-day meeting will begin tomorrow and ends on Wednesday with the statement being released at 2:00pm ET. There is no chance of a hike in the Fed Funds Rate, currently at 0.25%, but the talks will center around tapering, which is now likely to be put off until at least March of 2014, given the current state of the shaky jobs market. Tomorrow has the bulk of this weeks economic data with three reports scheduled for release that are likely to influence mortgage rates. The first is Septembers Retail Sales report at 8:30 AM ET that measures consumer spending. This data is very important to the markets because consumer spending makes up over two-thirds of the U.S. economy. Therefore, any related data is watched closely. If we see weaker than expected readings in this report, the bond market should respond favorably and mortgage rates should drop tomorrow morning. However, stronger than expected sales would fuel optimism about the economy and would likely lead to a stock rally that hurts bonds prices and pushes mortgage rates higher. Current forecasts are calling for a 0.1% decline in retail-level sales, meaning consumers spent a little less last month than they did in August. Good news for the bond market and mortgage pricing would be a larger decline in sales. Septembers Producer Price Index (PPI) is the second key report of the day, also at 8:30 AM ET. This is one of the two very important inflation readings we get each month. The index measures inflationary pressures at the producer level of the economy. Analysts are expecting to see a 0.2% increase in the overall index and a 0.1% rise in the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices. A larger than expected increase could raise concerns in the bond market about future inflation, leading to higher mortgage rates tomorrow morning. However, weaker than expected readings should result in bond market strength and lower mortgage pricing. Octobers Consumer Confidence Index (CCI) at 10:00 AM ET is the final report of the day. This Conference Board index gives us a measurement of consumer willingness to spend. It is expected to show a drop in confidence from last months 79.7 reading. That would mean that consumers felt a worse about their own financial and employment situations than last month, indicating they are less likely to make large purchases in the near future. That would be good news for the bond market because consumer spending makes up a significant part of our economy. As long as the reading doesnt exceed the forecasted 74, we will likely see the bond market react favorably to this report.
Posted on: Mon, 28 Oct 2013 17:01:32 +0000