WEDNESDAY AFTERNOON UPDATE:
This week’s FOMC meeting has adjourned with no change to key short-term interest rates. This did not come as a surprise to most analysts. However, what did catch many off guard was a strong hint in the Fed’s post-meeting statement that a move is quite possible during December’s meeting. This shouldn’t have come as a surprise to the markets since sometime in 2015 has been projected for quite some time. Apparently it did still surprise market participants, so we are seeing a negative reaction in the bond market.
Stocks have moved in both directions since the 2:00 PM adjournment, initially weakening and slipping into negative ground before rebounding back to their pre-announcement levels. The Dow is currently up 108 points while the Nasdaq is up 35 points. The bond market is currently down 15/32 (2.08%), which should cause an upward revision in mortgage rates of approximately .125 – .250 of a discount point. I believe this is knee-jerk reaction that will likely correct itself in the immediate future. Unfortunately, the potential improvement that was possible from this meeting has evaporated. Therefore, it may be time to shift back to more of a conservative stance towards mortgage rate direction.
We were already seeing some pressure build in bonds following the results of today’s 5-year Treasury Note auction at 1:00 PM ET. The sale did not go very well with several indicators pointing toward a weak level of investor interest in the securities. That makes it hard to be too optimistic about tomorrow’s 7-year Note auction. Results of it will be posted at 1:00 PM tomorrow, possibly affecting afternoon mortgage rates.
There are two economic reports scheduled for release early tomorrow morning. The much more important one is the preliminary reading of the 3rd Quarter Gross Domestic Product (GDP). The GDP is considered to be the benchmark measurement of economic growth because it is the total of all goods and services produced in the U.S. and therefore is likely to have a major impact on the financial markets and mortgage pricing. There are three versions of this report, each a month apart. Tomorrow’s release is the first and usually has the biggest influence on the markets. Current forecasts call for an increase of approximately 1.6% in the GDP, which would mean that the economy grew at a noticeably slower pace than the 2nd quarter’s 3.9% rate. If this report shows a much smaller increase, I am expecting to see the bond market rally and mortgage rates fall. However, a larger than expected rise could lead to a rally in stocks, bond selling and a sizable increase in mortgage pricing tomorrow morning.
The second report of the day will be last week’s unemployment figures. They are expected to show that 264,000 new claims for unemployment benefits were made last week, up from the previous week’s 259,000 initial claims. Rising claims indicates a softening employment sector, so the higher the number the better the news it is for mortgage rates. Although, it is worth noting that this is only a weekly update and the quarterly GDP is a much more influential report than this. Accordingly, don’t expect a significant reaction to the data.