Santa Fe Las Campanas Bonds/Stocks Market Report


Monday’s bond market has opened well in negative territory following stronger than expected economic data that has helped boost stock prices. The major stock indexes are starting the week with sizable gains, partly a result of the data and partly due to downward revisions to storm damage estimates from the weekend. The Dow is currently up 152 points while the Nasdaq has gained 50 points. The bond market is currently down 19/32, which should push this morning’s mortgage rates higher by approximately .125 – .250 of a discount point.
July’s Personal Income and Outlays report was posted this morning, revealing a 0.2% increase in income and a 0.8% jump in spending. The income reading was slightly below forecasts, meaning consumers had less money to spend. But the spending increase was well above expectations of a 0.5% rise, indicating consumers were spending more than many had thought last month. That is bad news for the bond market and mortgage rates because consumer spending fuels economic growth and the bond market thrives in weaker economic conditions.
The rest of the week brings us the release of five more economic reports and the minutes from the most recent Fed monetary policy meeting. There is data scheduled for release each day this week, but the most important news comes the latter part. However, the data scheduled before then is important enough to influence mortgage rates, so please keep an eye on the markets if still floating an interest rate.
The Conference Board gives us tomorrow’s economic data with the release of their Consumer Confidence Index (CCI) for August during late morning hours. This index measures consumer sentiment about their personal financial situations, giving us a measurement of consumer willingness to spend. A decline in confidence would indicate that surveyed consumers probably will not make a large purchase in the immediate future. That would be a sign of economic weakness and should drive bond prices higher, leading to lower mortgage rates Tuesday. It is expected to show a reading of 52.0, which would be a large decline from July’s 59.5. The lower the reading, the better the news for bonds and mortgage pricing.
Also tomorrow 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 will be interesting to see some of the Fed member’s views on the economy and inflation and if they will hint what the Fed’s next move may be, particularly about the need for more economic stimulus. But this is one of those events that can cause significant movement in rates after its release or be a non-factor. I suspect that this particular release will cause movement in bond prices, but not enough to significantly affect mortgage pricing.
Overall, I expect to see the most movement in rates Friday, but tomorrow and Thursday should also be fairly active. Also worth mentioning though is the fact that next Monday is Labor Day so all markets will be closed. The bond market will not close early this Friday, but many traders may head home for the long weekend after Friday’s data is posted. This means that trading will likely be thin Friday afternoon even though the markets will still be open. This could lead to additional volatility in rates as traders prepare for the long weekend, so please be careful this week if still floating an interest rate.