Mel's Blog

November 09 Market News #8

November 24th, 2009 11:53 AM by Mel Samick

Monday's bond market has opened in negative territory following stronger than expected economic data and a sizable rally in stocks. The stock markets are starting the week with strong gains with the Dow up 132 points and the Nasdaq up 30 points. The bond market is currently up 22/32.

The National Association of Realtors reported late this morning that sales of existing homes rose over 10% last month, greatly exceeding analysts' forecasts. This fuels the theory that the housing sector is strengthening, which is thought by many to be needed for a broader economic recovery. Therefore, this data can be considered bad news for bonds and mortgage rates, but this was one of the week's least important reports so its impact on rates has been minimal.

Tomorrow morning brings us the first revision to the 3rd Quarter Gross Domestic Product (GDP). The GDP revision is expected to show a downward revision from last month's preliminary reading of a 3.5% annual rate of expansion. Current forecasts call for a reading of approximately 2.9%, meaning that there was 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 smaller than expected reading for this report to improve mortgage rates.

November's Consumer Confidence Index (CCI) will also be released tomorrow morning, but during late morning trading. It gives us a measurement of consumer willingness to spend. If consumer confidence is rising, analysts believe that consumers are more apt to make larger purchases, essentially fueling economic growth. This raises inflation concerns and usually pushes mortgage rates higher. Analysts are expecting to see little change from last month's 47.7 reading, meaning consumer were just as concerned about their own financial situations as they were last mo nth. A weaker than expected reading should be good news for mortgage rates, but a stronger than expected reading could push mortgage rates higher tomorrow.

Also worth noting about tomorrow is the release of the minutes from the last FOMC meeting and the 5-year Treasury Note auction. Both are afternoon events and both have the potential to heavily influence the bond market or be a non-factor. The results of auction will be posted at 1:00 PM ET. If there was a strong demand from investors, we could see bond prices rise and mortgage rates fall during afternoon hours. But a lackluster interest in the sale could lead to higher mortgage pricing.

The FOMC minutes may be a major mover of the markets or a non-factor, depending on what they say. The key will be concerns over inflation and the Fed's next move. If the Fed members were concerned about inflationary pressures and overly optimistic about economic growth, we may see the bond market move lower and mortgage rates higher tomorrow afternoon. However, if they indicate a likelihood of another rate cut in the coming months, we should see the bond market rise and mortgage rates drop during afternoon trading.

                Mel

Posted in:General
Posted by Mel Samick on November 24th, 2009 11:53 AM

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