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  • Writer's pictureJenny Phung

Mortgage Market Update

This week brings us the release of six monthly and quarterly economic reports for the markets to digest, two of which are considered to be highly important. There are also two potentially relevant Treasury auctions and an FOMC meeting to deal with. Also worth mentioning is the fact that earnings season is in full swing, where publicly-traded companies announce their quarterly and annual earnings. Earnings generally affect stocks much more than bonds, but what is bad news for stocks is usually considered to be good news for bonds and mortgage rates.

The week's activities start early tomorrow morning when March's Durable Goods Orders will be released. This report gives us an indication of manufacturing sector strength by tracking orders for big-ticket items at U.S. factories. These are products that are expected to last three or more years, such as appliances, electronics and airplanes. Current forecasts are calling for a 2.0% increase in new orders, indicating growth in the manufacturing sector. Weaker manufacturing activity is favorable news for mortgage rates.

Tomorrow afternoon has the first of two relatively important Treasury auctions that may influence bond trading enough to slightly affect mortgage rates. There will be an auction of 5-year Treasury Notes tomorrow and 7-year Notes on Tuesday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we may see broader selling in the bond market that leads to upward revisions in mortgage rates. On the other hand, strong sales usually make government securities more attractive to investors and bring more funds into bonds. Results of the sales will be posted at 1:00 PM ET each auction day, so look for any reaction to come during early afternoon hours.

April's Consumer Confidence Index (CCI) will be posted at 10:00 AM ET Tuesday. The CCI is considered to be an indicator of future spending by consumers. The Conference Board surveys 5,000 consumers from across the country about their personal financial situations. If sentiment is strong or rising, it is believed that consumers are more apt to make large purchases in the near future. However, if they are concerned about issues such as job security, savings or a pandemic, they will probably delay making large purchases. The latter is better for the bond market and mortgage rates because the expected slowdown in spending would keep inflation and economic growth to a minimum. Forecasts show an increase from March's 109.7. The smaller the reading, the better it is for mortgage pricing.

This week's FOMC meeting will begin Tuesday and adjourn Wednesday afternoon. There isn't much of a chance the Fed will raise key short-term interest rates at this time. What the markets will be looking for in the post-meeting statement and press conference with Chairman Powell is any indication of when they are planning to start raising rates or adjust their bond-buying program, currently at $120 billion per month. The meeting will adjourn at 2:00 PM ET while the press conference will begin at 2:30 PM. This meeting does not include revised economic projections.

The big economic news of the week will come at 8:30 AM ET Thursday when the preliminary version of the 1st Quarter Gross Domestic Product (GDP) will be released. There is a strong argument to be made that this is the single most important report that we see on a regular basis. The GDP is the sum of all products and services produced in the U.S. and is considered to be the best measure of economic growth or contraction. Market participants are expecting it to show that the economy grew at an annual rate of 6.5% during the first three months of this year. A smaller increase in activity would be considered good news for mortgage rates.

Personal Income and Outlays data for March will be posted at 8:30 AM ET Friday. It helps us measure consumer ability to spend and current spending habits. This information is important to mortgage rates due to the influence that consumer spending-related data has on the financial markets. If a consumer's income is rising, they have the ability to make additional purchases in the near future, fueling economic growth that raises inflation concerns and has a negative impact on the bond market and mortgage rates. This month's release is expected to show a 20.3% spike in income and 4.0% rise in spending due to the $1400 stimulus payments that went out last month. In this report is also the Fed's preferred inflation reading (PCE index) that will draw some attention.

Also early Friday morning will be the release of the 1st Quarter Employment Cost Index (ECI). This index tracks employer costs for wages and benefits, giving us a measurement of wage-inflation. A large increase in costs means employers will need to pass those increases into the pricing of their products and services. That would be bad news for bonds and mortgage rates. A smaller increase than the 0.7% rise that forecasts are calling for would be good news.

The week closes with the University of Michigan's revised Index of Consumer Sentiment for April at 10:00 AM ET Friday. This report gives us an indication of consumer sentiment and their willingness to spend. Current forecasts are calling for an upward revision, to 87.1, from the preliminary reading two weeks ago. This means that surveyed consumers were more optimistic about their own financial situations than they were earlier this month. This data is relevant because waning confidence in their own financial situations usually means consumers are less apt to make a large purchase in the near future. Since consumer spending makes up approximately 70% of the U.S. economy, related data is watched fairly closely.

Overall, either Wednesday or Thursday is likely to be the key day of the week due to the FOMC meeting and GDP release. We also may see rates move noticeably tomorrow with the Durable Goods report being released. No day stands out as a good candidate for calmest day. Look for plenty of movement in the financial markets and possibly mortgage rates over the next five days. Therefore, please proceed cautiously if still floating an interest rate and closing in the near future.

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