This week brings us the release of six monthly and quarterly economic reports in addition to a couple of Treasury auctions and two days of Fed congressional testimony. There is at least one item set for each day, meaning we may see another active week for the markets and mortgage rates.
February's Existing Home Sales report will kick-off this week’s activities late tomorrow morning. The National Association of Realtors will give us this measurement of housing sector strength and mortgage credit demand. It is expected to reveal a decline in home resales, meaning the housing sector weakened last month. Bond traders would prefer to see a large drop in sales, pointing towards a rapidly weakening housing sector. Bad news would be a sizable increase, indicating that the housing sector is gaining momentum. That could be troublesome for the bond market and mortgage rates because housing strength makes broader economic growth more likely.
Next up is another housing report with the release of February's New Home Sales data at 10:00 AM ET Tuesday. The Commerce Department is expected to announce a decline in sales of newly constructed homes. This report tracks a much smaller percentage of home sales than tomorrow’s Existing Home Sales report, so it should not have much of an influence on the markets and mortgage pricing. A large increase in sales would be negative for the bond market and mortgage pricing because it would signal economic strength.
Fed Chairman Powell will speak before the House Financial Services Committee at noon Tuesday as part of the Coronavirus Aid Act. The markets listen carefully anytime he speaks publicly, especially during congressional testimony. This event has the potential to be a market-mover, causing noticeable volatility in the financial and mortgage markets. He often releases his prepared statement before actually speaking, meaning we could see a market reaction earlier that day. This process will repeat itself Wednesday morning when he appears before the Senate Banking Committee.
Durable Goods Orders for February will start Wednesday’s calendar. It will give us insight into the manufacturing sector by tracking new orders at U.S. factories for items such as electronics, refrigerators and airplanes. Analysts are expecting to see a 0.9% increase in new orders. It is worth noting that this data is known to be quite volatile from month to month, so large swings in the headline reading are common and won’t be as meaningful as it would be in most other reports. Good news for mortgage rates would be a sizable decline.
Besides day two of Chairman Powell’s testimony and the Durable Goods Orders release, Wednesday also has the first of this week’s two relatively important Treasury auctions that may also influence bond trading enough to slightly affect mortgage rates. There will be an auction of 5-year Notes Wednesday and 7-year Notes Thursday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly with weak demand from investors, we could see selling in the broader bond market that leads to upward revisions to mortgage rates. However, strong sales usually make bonds more attractive to investors. The buying of bonds that follows often translates into lower mortgage rates. Results of the sales will be posted at 1:00 PM ET auction day, so look for any reaction to come during early afternoon hours.
The second and final revision to the 4th Quarter GDP will be released at 8:30 AM ET Thursday. The Gross Domestic Product is the total of all goods and services produced in the U.S. and is the benchmark measurement of economic activity. It is expected to show that the economy grew at an annual pace of 4.1% last quarter, unchanged from the previous estimate that was released last month. Analysts are now more concerned with next month's preliminary reading of the 1st quarter than data from three to six months ago. Accordingly, unless we see a significant revision, this report probably will have little impact on Thursday's mortgage rates.
The Personal Income and Outlays report for February is the first of two reports set for Friday morning. This data helps us measure consumers' ability to spend and current spending habits, which is important to the mortgage market because of the influence that consumer spending-related information has on the financial markets. If a consumers' income is rising, they are more likely to make additional purchases in the near future. Therefore, weaker than expected readings would be good news for bonds and mortgage rates. Also in this release is an important inflation index (PCE) that the Fed uses to gauge inflation. Forecasts are currently calling for a 7.0% drop in February's income after January’s stimulus-fueled jump and a 0.6% decline in spending. The weaker the readings, the better the news it will be for mortgage rates.
Friday's second report comes from the University of Michigan at 10:00 AM ET. Their revised March Consumer Sentiment Index will give us an indication of consumer confidence, which hints at consumers' willingness to spend. Rising confidence is considered bad news for the bond market and mortgage pricing because it usually means consumers are more willing to make large purchases. Friday's report is expected to show a reading of 83.6, up from the preliminary reading of 83.0 posted two weeks ago. Favorable results for bonds and mortgage rates would be a sizable decline in confidence.
Overall, Tuesday looks to be the most important day for rates due to the Fed testimony, but Wednesday has the most important economic data of the week and an afternoon event to watch. No day stands out as a good candidate for least important. Now that some of the factors that have been negatively affecting bonds recently appear to be behind us, we hopefully will see yields and mortgage rates stabilize. That is needed before we can see a meaningful downward trend in rates. In case the selling is not quite done yet, it would be prudent to keep an eye on the markets is still floating an interest rate and closing soon.