July 7th, 2014
This week has no monthly or quarterly economic reports that we normally follow, although there are two Treasury auctions and the minutes from the last FOMC meeting that may influence mortgage rates. This week also starts corporate earnings season that can heavily affect stock trading and bond market sentiment. Market participants are anxiously waiting for these announcements to see how our economy and global financial situations are affecting earnings. Just as important as this past quarter’s results are their forward-looking estimates. If revenue, earnings and projections from the big-named companies exceed expectations, stocks will likely rally.
There is nothing of relevance scheduled for release Monday or Tuesday except some high profile corporate earnings reports. Alcoa is expected to post their earnings after the market closes Tuesday, so it will have an impact on overnight and early morning trading Wednesday. This company isn’t necessarily important to gauging overall economic strength, but it is the first Dow component company that posts earnings each quarter. Since it is the first look into Dow-related earnings, it draws plenty of attention in the markets. Generally speaking, weaker corporate earnings translates into stock selling that makes bonds more attractive to investors. As bond prices rise, yields fall and mortgage rates usually follow bond yields.
Wednesday has the first of two important Treasury auctions when 10-year Notes will be sold. That sale will be followed by a 30-year Bond auction Thursday. These sales can influence market trading in bonds and possibly affect mortgage rates. If the sales are met with a strong demand from investors, particularly Wednesday’s sale, we should see afternoon improvements in bonds that could lead to downward revisions to mortgage rates. However, if buyers stay on the sidelines, we may see bonds fall after results are posted at 1:00 PM ET and mortgage rates move higher those days.
Also Wednesday is the afternoon release of the minutes from the last FOMC meeting. There is a possibility of the markets reacting to them following their 2:00 PM ET release. I find it hard to believe that they could reveal anything more surprising than we got after the last FOMC meeting or during Chairman Yellen’s press conference that followed. Still, market participants will be looking for anything new, particularly about when the Fed may start raising key short-term interest rates. The minutes will show us how members voted for related motions and could cause more volatility in the markets if there is anything unexpected in them.
Overall, it is difficult to try to label one particular day as the most important this week. The best candidate for most important day for the bond market is Wednesday due to the 10-year Note auction and the release of the FOMC minutes, but those are afternoon events and there is a chance that they will not have a noticeable impact on rates. It is fairly easy to say the least important will likely be Monday or Tuesday with nothing on the calendar those days. Despite the lack of key economic data or potential market-moving events, I still strongly recommend maintaining contact with your mortgage professional if still floating an interest rate because it is my opinion that the likelihood of bond yields and mortgage rates moving higher in the immediate future is currently stronger than them moving much lower.