This week brings us the release of only three monthly or quarterly economic reports that have the potential to influence mortgage pricing and none of them are considered highly important. That should be a relief compared to the past couple weeks as we have seen a great deal of volatility in the bond and mortgage markets over that time. There is nothing of importance set for tomorrow except maybe a reaction to Italy’s referendum vote. It appears to be a positive for bonds at the moment, but that is a fluid situation that will become more of a topic of conversation in the coming days and weeks.
The first event of the week will come early Tuesday morning when revised 3rd Quarter Productivity numbers are posted. This index is expected to show a small upward revision from the preliminary reading of worker productivity. Higher levels of productivity are thought to allow the economy to expand without inflationary pressures rising. This is good news for the bond market because economic growth itself isn't necessarily bad for the bond market. It's the conditions around an expanding economy, such as inflation, that hurt bond prices and mortgage rates. Current forecasts are calling for an annual rate in productivity of 3.3%, up from the previous estimate of 3.1%. The higher the reading, the better the news for the bond market. Although, this report generally does not have a noticeable impact on mortgage pricing, so it will take a wide variance to draw much attention.
October's Factory Orders report will also be released Tuesday morning, but at 10:00 AM ET. This Commerce Department report is similar to the Durable Goods Orders report that was released the week before last, except this one includes manufacturing orders for both durable and non-durable goods. This release usually doesn't have a significant influence on bond trading since a good portion of the data has previously been made public. Analysts are expecting to see a 2.5% increase in new orders. The weaker the number, the better the news for bond prices and mortgage rates because it would signal softer than expected manufacturing sector activity.
The final report of the week is the release of December's preliminary reading to the University of Michigan's Index of Consumer Sentiment late Friday morning. This index measures consumer willingness to spend and can usually have enough of an impact on the financial markets to change mortgage rates slightly if it shows a sizable miss from forecasts. Consumer sentiment or confidence is tracked because the more comfortable consumers are about their own financial situations, the more likely they are to make a large purchase in the near future. Since consumer spending makes up such a large part of our economy, any related data is watched closely. Friday's release is expected to show a reading of 94.3, which would be an increase from last month's final reading of 93.8. A large decline in confidence would be considered good news for the bond market and mortgage rates.
Overall, I believe we may see a less active week for mortgage rates compared to the last couple weeks. However, that doesn’t mean we won’t see any movement in rates the next few days. Tuesday is the busiest day with two of the three releases, but neither of them are considered to be highly important to the markets. We also will be watching political issues in Italy as it could affect the global markets. It is feared that the No vote on their referendum may put pressure on their banking system and government borrowing ability, which could create volatility in the international markets and global economy.