Mortgage Market Update
This week brings us the release of six relevant monthly and quarterly economic reports for the markets to digest in addition to a couple of potentially relevant Treasury auctions. None of the reports are considered to be key to the markets, although, a couple are considered to be highly important. There is nothing of importance set for tomorrow, the only day without at least a single item scheduled.
The Conference Board starts the week's calendar with their Consumer Confidence Index (CCI) at 10:00 AM Tuesday. This data measures consumer willingness to spend. If the index rises, it indicates that consumers felt better about their personal financial and employment situations than they did last month and therefore, are more apt to make large purchases in the near future. If confidence is sliding, analysts think consumer spending may slow in the near future. The latter is good news for the bond market because consumer spending is such a big portion of the U.S. economy. A decline in the index should boost bond prices and push mortgage rates lower Tuesday morning while a larger than expected reading would likely cause rates to move slightly higher. It is expected to show a reading of 119.0, down from April's 121.7.
Also late Tuesday morning will be the release of April's New Home Sales report. This data gives us a small measurement of housing sector strength and mortgage credit demand but probably will not have much of an impact on mortgage pricing. Analysts are expecting to see a decline in sales from March's level, meaning the new home portion of the housing sector softened last month.
Wednesday does not have any morning economic releases but does have the 5-year Treasury Note auction, which will be followed by the 7-year Note sale Thursday. Neither of these sales will directly impact mortgage pricing, although they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to a slight upward revision to mortgage rates. On the other hand, strong sales usually make bonds more attractive to investors, bringing more funds into the market. The buying that follows often translates into lower mortgage rates. 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 Wednesday and/or Thursday.
Thursday brings us an important monthly and quarterly report. One is the first revision to the 1st quarter Gross Domestic Product (GDP). The GDP is the sum of all goods and services produced in the U.S. and is considered to be the best measurement of economic growth or contraction. Last month's preliminary reading revealed that the economy grew at an annual rate of 6.4%. Analysts expect to see little change in this update. If the revision comes in stronger than the last estimate, we may see the bond market react negatively and mortgage rates move higher because it would mean the economy was doing better than thought. Since bonds tend to thrive in weaker economic conditions, a much smaller rate of growth would be good news for mortgage rates.
The monthly report set for Thursday morning is April's Durable Goods Orders. This data gives us an indication of manufacturing sector strength by tracking orders at U.S. factories for big-ticket products. These are items made with an expected life span of three or more years such as airplanes, appliances and electronics. It is currently expected to show an increase in new orders of 0.8%, showing that the manufacturing sector strengthened a little last month. This data is known to be quite volatile from month to month. Therefore, a small variance from forecasts will likely have a minimal impact on Thursday's mortgage rates. The smaller the rise in orders, the better the news it is for mortgage rates.
Friday has two reports set for release, starting with April's Personal Income and Outlays data at 8:30 AM ET. This Commerce Department report gives us an indication of consumer ability to spend and current spending habits. A decline in income means that consumers have less money available to spend. Since consumer spending makes up over two-thirds of our economy, this data can cause movement in the financial markets and mortgage rates. Current forecasts are showing a 14.9% decline in income due to the stimulus payments that went out in March. Spending is expected to have risen 0.5%. Weaker number would be considered good news for bonds and mortgage rates as they would show that the economy is in worse shape than expected.
The last mortgage-related data of the week will come from the University of Michigan late Friday morning when they update their Index of Consumer Sentiment for May. This type of data is watched fairly closely because when consumers are feeling more confident about their own financial situations, they are more likely to make a large purchase in the near future. Rising confidence and the higher levels of spending that usually follow are considered negative news for bonds and mortgage rates. Friday's report is expected to show little change from this month's preliminary reading of 82.8. A higher reading would be considered bad news for bonds and mortgage pricing while a large downward revision should help boost bond prices and lead to a slight improvement in rates.
Also worth noting Friday is the early close for the bond market ahead of next Monday’s Memorial Day holiday. The bond market will close at 2:00 PM ET Friday while stocks trade for a full day. All markets will be closed the following Monday for the holiday. We sometimes see a bit of volatility in bonds as traders look to protect themselves over the three plus day weekend.
Overall, Thursday is a good candidate for the most active day for rates due to the importance of the Durable Goods Orders and GDP reports. Friday also may be active with two reports and an early close for bonds. The calmest morning will probably be Wednesday, but there is a chance of seeing afternoon movement. With so much going on this week, it would be prudent to keep an eye on the markets if still floating an interest rate and closing in the near future.