This week’s FOMC meeting has adjourned with no change to key short-term interest rates and an announcement that the Fed’s QE bond buying program has concluded. Both were widely expected. The post-meeting statement made a couple interesting points but none were significantly surprising. The bigger ones were confirmation that the labor market has continued to improve and that long-term inflation will likely gain momentum towards their preferred benchmark.
Overall, after the initial knee-jerk reaction, the markets are not far off from their pre-adjournment levels. The stock markets are still showing moderate losses, which weakened somewhat between our morning update and the 2:00pm announcement. The Dow is currently down 46 points while the Nasdaq is down 27 points and the bond market is currently down 7/32 (2.32%). This may be enough of a move from morning levels to cause a slight increase in mortgage rates, but many lenders will likely opt to see which direction the markets head as the afternoon progresses and could wait until tomorrow to reflect any change in pricing.
Today’s 5-year Treasury Note auction did not go well at all. Several benchmarks we use to gauge investor demand showed poor interest in the securities. That news had a negative impact on bond trading but fortunately the reaction was minimal due to the FOMC results an hour later. It doesn’t give us much to be optimistic about though in tomorrow’s 7-year Note sale. We do have data being posted in the morning but nothing in the afternoon. Therefore, we may see more of a reaction to tomorrow’s auction results than we did in today’s sale.
There are two pieces of economic data set to be posted early tomorrow morning. However, one of them is much more important to the financial and mortgage markets than the other. The key release will be the preliminary reading of the 3rd Quarter Gross Domestic Product (GDP) at 8:30 AM tomorrow. 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 3.0% in the GDP, which would mean that the economy grew at a noticeably slower pace than the 2nd quarter’s 4.6% 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 morning is last week’s unemployment figures. They are expected to show that 284,000 new claims for unemployment benefits were filed last week, up slightly from the previous week’s 283,000 initial claims. The higher the number of claims, the better the news it is for mortgage rates because rising unemployment filings are a sign of a weakening employment sector. Although, since this is only weekly report, it usually takes a wide variance from forecasts for it to directly affect mortgage rates.