Mortgage Market Update
This holiday-shortened week brings us six monthly or quarterly economic reports for the markets to digest in addition to a couple of Treasury auctions and the minutes from the most recent FOMC meeting. Despite the holiday, it still should be a very active week for the markets and mortgage rates. The week’s first event comes tomorrow afternoon when the results of the 5-year Treasury Note auction are posted. That will be followed by the sale of 7-year Notes Tuesday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions in mortgage rates. However, strong investor demand usually makes bonds more attractive to investors and brings funds into the bond market. The buying of bonds that follows translates into lower mortgage rates. Results of the sales will be posted at 1:00 PM ET each day. Any reaction to them will come shortly after those results are posted. November's Consumer Confidence Index (CCI) is the first economic data of the week, scheduled for late Tuesday morning. This Conference Board index helps us track consumer willingness to spend. If a consumer's confidence in their own financial and employment situation is strong, analysts believe that they are more apt to make larger purchases in the near future, fueling economic growth. This is important because consumer spending makes up over two-thirds of the U.S. economy and strength in it makes long-term securities such as mortgage-related bonds less attractive to investors. Analysts are expecting to see a decline in confidence from last month's level, meaning surveyed consumers were a less optimistic about their own financial situations this month than they were last month. A weaker reading than the 96.5 that is expected would be good news for mortgage rates, while a stronger reading could push mortgage rates higher Tuesday. Wednesday has a good-sized batch of events that we will be watching, starting with weekly unemployment figures. October's Durable Goods Orders at 8:30 AM ET is the first monthly release. This data helps us measure manufacturing strength by tracking orders for big-ticket items or products that are expected to last three or more years, such as airplanes, appliances and electronics. It is known to be quite volatile from month-to-month, so sizable swings from the previous month are fairly normal. It is expected to show a 0.9% rise in new orders. A smaller than expected increase would be considered good news for the bond market and mortgage rates as it would indicate the manufacturing sector was not as strong as thought. We need to see a sizable variance from forecasts though for the markets to have a noticeable reaction due to the usual volatility in the data. Also early Wednesday morning will be the release of the first revision to the 3rd Quarter Gross Domestic Product (GDP). It is expected to show no change from last month's preliminary estimate of a 33.1% annual rate of growth. The GDP measures the total of all goods and services produced in the U.S. and is considered to be the benchmark measurement of economic growth. Good news for rates would be a downward revision, meaning the economy was not as strong as previously thought. However, this data is somewhat aged at this point covering the July, August and September months. That means it will take a noticeable revision to cause a move in rates. October's Personal Income and Outlays data is also set for release Wednesday morning. This data measures consumers' ability to spend and their current spending habits. It also includes an inflation reading (PCE index) that the Fed relies on when making their monetary policy decisions. Because consumer spending is such a large part of the U.S. economy and controlling inflation is a key part of the Fed's responsibilities, data such as this can influence the markets and mortgage rates. The bond market tends to thrive in weaker economic conditions, so good news for mortgage rates would be softer than expected readings. Current forecasts are calling for a no change the income reading while spending rose 0.3%. This week’s least important report is October’s New Home Sales data at 10:00 AM ET Wednesday. It will give us an indication of housing sector strength. Analysts are expecting to see an increase between September and October's sales of newly constructed homes. It will take a large change in sales for this data to influence mortgage rates, partly because this report tracks such a small portion of all home sales. Last week's Existing Home Sales report covers most of the home sales in the U.S. Concluding the week’s economic releases will be the revised University of Michigan Index of Consumer Sentiment for November late Wednesday morning. Current forecasts are calling for little change from the 77.0 preliminary reading two weeks ago, meaning surveyed consumers felt nearly the same about their own financial and employment situations as they did earlier in the month. Bond traders would prefer to see a decline because waning confidence usually means consumers are less likely to make a large purchase in the near future, restricting economic growth. As long as we don't see a large upward move, the report will likely have a minimal impact on rates. The final event of the week will be the minutes from the last FOMC meeting at 2:00 PM ET Wednesday. Traders will be looking for any indication of the Fed's next move regarding monetary policy from discussion of the participating members. The minutes will show what economic concerns members have about the pandemic, lack of another stimulus package and what the near future holds. They will be released at 2:00 PM ET, therefore, any reaction will come during mid-afternoon trading. These minutes may lead to afternoon volatility Wednesday, or they may be a non-factor. Because they do carry the potential to influence mortgage rates, they should be watched. The financial markets will be closed Thursday in observance of the Thanksgiving Day holiday. There will not be an early close Wednesday ahead of the holiday, but the stock and bond markets will close early Friday and will reopen next Monday morning. I suspect that Friday will be a very light day in bond trading as many market participants will be home for the long weekend. The same can be said to some degree Wednesday afternoon also. Overall, I am expecting Wednesday to be the busiest day for the bond market and mortgage rates with so many releases scheduled, including the most important of the week. The calmest day will most likely be Friday as many traders will be home for the long weekend rather than in the office working.