Weekly Market Outlook

[Adam in CO]

This week brings us the release of several important economic releases for the bond market to watch. This will also be a shortened week in the bond market as a result of the Labor Day holiday next Monday. There are seven reports along with the minutes from the last FOMC meeting between tomorrow and Friday. This makes it quite likely that we will see a fair amount of volatility in the financial markets this week.

Tuesday brings us the first piece of data for the markets to digest. The Conference Board will post this month?s Consumer Confidence Index (CCI) at 10:00 AM. This index measures consumer willingness to spend, which is important because consumer spending makes up two thirds of the U.S. economy. A decline would indicate that consumers may not be making large purchases in the immediate future. That sign of economic weakness should drive bond prices higher, leading to lower mortgage rates Tuesday. It is expected to show a reading of 103.7, which would be lower than July?s 106.5.

Also worth noting about Tuesday is the release of the minutes from the last FOMC meeting. There is a pretty good possibility of the markets reacting to them following their 2:00 PM ET release, especially if they show some divisiveness by its members. It is already known that at least one member voted for another rate increase when the majority voted to not change rates at the last meeting. It will be interesting to see some of the Fed member?s views on the economy and inflation.

Wednesday?s only data is the first revision to the 2nd Quarter Gross Domestic Product (GDP). Last month?s preliminary reading revealed a 2.5 % pace, which was well below analysts? forecasts. A downward revision should help lower mortgage rates Wednesday. However, an upward revision above the current forecast of 3.0% could lead to higher mortgage rates Wednesday. There will be a final revision issued next month, but it probably will have little impact on mortgage rates.

Thursday is another multi-release day with the release of July?s Personal Income and Outlays and Factory Orders The income and spending data measures consumer ability to spend and current spending habits. It is expected to show an increase of 0.5% in income and a 0.8% increase in spending. Weaker than expected numbers would be good news for the bond market and mortgage rates.

The second report of the day is July?s Factory Orders data. This report measures manufacturing sector strength and is similar to last week?s Durable Goods Orders, but includes orders for both durable and non-durable goods. This data is expected to show a 0.5% increase in new orders. A smaller than expected rise should lead to lower mortgage rates Thursday, especially if the income and spending report reveals weaker than expected readings.

Friday is going to be a doosy of a day. There are three reports scheduled for release but two of them are highly important to the bond market and mortgage rates. The first is the most important of the three. The Labor Department will post the unemployment rate, number of new jobs added or lost and average hourly earnings for August early Friday morning. The ideal scenario for the bond market and mortgage rates is rising unemployment, a smaller than expected rise in new payrolls and earnings to remain unchanged. If we are that fortunate, I expect to see mortgage rates drop considerably Friday morning. Analysts are expecting to see the unemployment rate slip back to 4.7% and 125,000 new jobs added.

August?s revision to the University of Michigan Index of Consumer Sentiment is also due Friday morning. It gives us a measurement of consumer willingness to spend. It is expected to show an increase from August?s preliminary reading of 78.7. If it revises lower, consumers were less confident about their personal financial situations than previously thought. This would be good news for the bond market and mortgage rates.

The Institute for Supply Management (ISM) will post their manufacturing index at 10:00 AM ET. This index measures manufacturer sentiment and is expected to show a small increase from last month?s reading of 54.7. A reading above 50 means that more surveyed manufacturers felt business improved during the month than those who felt it worsened. A larger increase in the index would probably cause a rally in the stock markets and lead to mortgage rates rising Thursday, while a reading below 55.0 should lead to lower rates.

Overall, it is a shortened week but probably will be a very busy week. The bond market is expected to close at 2:00 PM ET Friday ahead of the Monday holiday. We will likely see the most activity in rates Friday morning, but Tuesday and Thursday are also important. If we manage to get weaker than expected results in the CCI, Employment and ISM reports, we should see mortgage rates close the week lower than tomorrow?s opening levels.

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