Market Commentary

Updated on September 26, 2022 10:09:27 AM EDT

There is no relevant economic data scheduled for release today. We are seeing heavy bond selling overseas carry into our market this morning. There are several factors driving bond prices lower and yields higher in those markets, led by fiscal concerns in the UK that were fueled by a surprise announcement of huge tax cuts and the largest amount of government borrowing since 1972 to cover the lost tax income. As with here in the U.S., the unexpected new supply that will be sold weakens demand for current securities, causing them to be sold at a discount. As bonds weaken globally, we are seeing the same here to start the new week.

The rest of the week has six monthly and quarterly reports that have the potential to affect rates. There are also a couple of Treasury auctions that may come into play during afternoon hours midweek and some Fed speeches that traders will watch.

August's Durable Goods Orders will start this week's activities at 8:30 AM ET tomorrow morning. It gives us an indication of manufacturing sector strength by tracking orders for big-ticket items at U.S. factories. Big-ticket products are items that are expected to last three or more years such as airplanes, electronics and appliances. Analysts are expecting to see a 0.6% decline in new orders, pointing towards weakness in the manufacturing sector. A larger decline should help boost bond prices and cause mortgage rates to drop because signs of economic weakness eases inflation fears and makes longer-term securities more appealing to investors. However, an unexpected increase in new orders will likely help push mortgage rates higher. It is worth noting that this data is known to be quite volatile from month-to-month, so a small variance from forecasts may not affect mortgage pricing like it would in other reports.

September's Consumer Confidence Index (CCI) will be posted at 10:00 AM ET tomorrow morning. This Conference Board index gives us a measurement of consumer willingness to spend. It is expected to show a rise in confidence from August's reading, meaning surveyed consumers were more optimistic about their own financial situations than last month. Rising confidence is thought to raise the possibility consumers will make a large purchase in the near future. Because consumer spending makes up almost 70% of the U.S. economy, good news for rates would be a decline. Analysts are calling for a reading of approximately 104.3, up from August's 103.2. The smaller the reading, the better the news for the bond market and mortgage rates.

Tomorrow's third piece of data will be August's New Home Sales report. The Commerce Department is expected to say at 10:00 AM ET that sales of newly constructed homes fell last month, but this report will likely not have a noticeable impact on mortgage rates unless it differs greatly from forecasts. It is the week's least important report in terms of potential impact on mortgage rates, partly because it covers only the small portion of all homes sales that last week's Existing Home Sales report did not.

We also have the first of this week's two potentially influential Treasury auctions taking place tomorrow. The Treasury will sell 5-year Notes Tuesday and 7-year Notes Wednesday. They will tell us if there is an appetite in the markets for medium-term securities. If investor demand in these sales is strong, particularly from international buyers, the broader bond market should move higher, pushing mortgage rates lower. But a lackluster interest from investors could lead to bond selling and higher mortgage pricing. The results of the sales will be announced at 1:00 PM ET each day, so any reaction will come during afternoon trading tomorrow and/or Wednesday.

Overall, the most important day for rates is either tomorrow or Friday. Both have multiple reports scheduled that carry elevated importance and can move rates noticeably. No day stands out as a clear candidate for calmest day since there is so much going on. We can expect to see an active week for rates, so keep an eye on the markets if still floating an interest rate and closing in the near future.

 ©Mortgage Commentary 2022

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of Horizon Credit Union.