Santa Fe Las Campanas Stock/Bond Market Report

Monday’s bond market has opened in positive territory following an early stock sell-off. The stock markets are reacting negatively to the weekend failure of the debt-reduction Super Committee and comments from overseas that raise more concern about the global economy. As a result, the Dow is currently down 255 points while the Nasdaq has lost 56 points. The bond market is currently up 16/32, but we will likely see an improvement of only .125 of a discount point in this morning’s mortgage rates. If the major stock indexes extend their current losses, we may be in for another small improvement later today. However, I don’t believe there is much of a chance of getting a sizable improvement in rates today.
The National Association of Realtors announced late this morning that sales of previously-owned homes rose 1.4% in October, exceeding forecasts of a 1.0% decline in sales. This news indicates that the housing sector was stronger than expected last month, making the data unfavorable to the bond market. Fortunately, traders are much more focused on the other news that is fueling the stock selling than this data.
The rest of this holiday-shortened week brings us the release of four more relevant economic reports for the markets to digest along with the last FOMC meeting’s minutes and two potentially important Treasury auctions. All of the week’s data is being posted over three days due to the Thanksgiving holiday, so the first part of the week should be interesting for mortgage shoppers.
Tomorrow’s economic data is the first revision to the 3rd Quarter Gross Domestic Product (GDP). It is expected to show little change from last month’s preliminary reading of a 2.5% annual rate of expansion. The GDP measures the total of all goods and services produced in the U.S. and is considered to be the best measurement of economic activity. Current forecasts call for a reading of approximately 2.4%, meaning that there was slightly less economic growth during the third quarter than previously thought. This would be good news for the bond market and mortgage rates, but it will likely take a larger decline to improve mortgage rates Tuesday morning.
Also tomorrow is the afternoon release of the minutes from the last FOMC meeting. Traders will be looking for any indication of the Fed’s next move regarding monetary policy. They will be released at 2:00 PM ET, therefore, any reaction will come during afternoon trading. This release is one of those that may cause some volatility in the markets after they are posted, or could be a non-factor. If they show anything surprising, we may see some movement in rates Tuesday afternoon, but it is more likely there will be little reaction since Fed Chairman Bernanke held a press conference following the most recent meeting.
Tomorrow also has the first of the week’s two Treasury auctions that may influence bond trading enough to affect mortgage rates. There will be an auction of 5-year Treasury Notes tomorrow and 7-year Notes on Wednesday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions in mortgage rates. However, strong sales usually make bonds more attractive to investors and bring more funds into the bond market. The buying of bonds that follows often translates into lower mortgage rates. Results of the sales will be posted at 1:00 PM ET auction day, so look for any reaction to come during afternoon hours.
Overall, I believe that we will see more volatility in the markets and mortgage rates the first couple days of the week as we head into the Thanksgiving Holiday. The most important day will probably be Wednesday, while the least important will be Friday. Today’s significant stock selling hasn’t caused much movement in mortgage rates yet, so no need to label today as a potential candidate. As we have seen recently, the markets can get pretty active at any time, so please be careful and maintain contact with your mortgage professional if you have not locked an interest rate yet. By Mark Wolshuk