This week has six monthly and quarterly reports scheduled for release, in addition to a couple of Treasury auctions and a political issue in Washington D.C. that may come to head. The week begins and ends with important economic releases and has plenty in between for the markets to digest. Accordingly, we can expect to see a fair amount of movement in the financial markets and mortgage pricing this week.
August's Durable Goods Orders will start this week’s activities at 8:30 AM ET tomorrow morning. It gives us an indication of manufacturing sector strength by tracking orders for big-ticket items at U.S. factories. Big-ticket products are items that are expected to last three or more years such as airplanes, electronics and appliances. Analysts are expecting to see a 0.6% rise in new orders, pointing towards moderate strength in the manufacturing sector. A sizable decline should help boost bond prices and cause mortgage rates to drop because signs of economic weakness make longer-term securities more appealing to investors. However, a much larger than expected increase in new orders will likely help push mortgage rates higher. It is worth noting that this data is known to be quite volatile from month-to-month, so a small variance from forecasts may not affect mortgage pricing like it would in other reports.
We also have the first of this week's two potentially influential Treasury auctions taking place tomorrow. The Treasury will sell 5-year Notes tomorrow and 7-year Notes Tuesday. They will tell us if there is an appetite in the markets for medium-term securities. If investor demand in these sales is strong, particularly from international buyers, the broader bond market should move higher, pushing mortgage rates lower. But a lackluster interest from investors could lead to bond selling and higher mortgage pricing. The results of the sales will be announced at 1:00 PM ET each day, so any reaction will come during afternoon trading tomorrow and/or Tuesday.
September's Consumer Confidence Index (CCI) will be posted late Tuesday morning. This Conference Board index gives us a measurement of consumer willingness to spend. It is expected to show a rise in confidence from August's reading, indicating that consumers were more optimistic about their own financial situations than last month. This means they are more likely to make a large purchase in the near future. Because consumer spending makes up almost 70% of the U.S. economy, good news for rates would be a decline. Analysts are calling for a reading of approximately 114.4, up from August's 113.8. The smaller the reading, the better the news for the bond market and mortgage rates.
There is nothing of relevance scheduled for release Wednesday. In addition to the weekly unemployment update, Thursday has the second revision to the 2nd Quarter Gross Domestic Product (GDP). Since this data is aged now and the preliminary reading of the 3rd Quarter GDP will be released next month, I don't see this update having much of an impact on the financial markets or mortgage pricing. The GDP is important because it is the total sum of all goods and services produced within the U.S. and is considered to be the best gauge of economic activity. Thursday's update is expected to show that the economy expanded at an annual rate of 6.7%, up slightly from last month's estimate of 6.6%. A significant downward revision would be considered favorable news for rates.
Also worth noting about Thursday is the midnight deadline for a temporary funding bill to be passed in Washington DC to avoid a government shutdown. We have been at these crossroads several times over the past decade and most have been resolved before the government needs to shutter. It is likely that a Continuing Resolution (CR) will be passed to avert a shutdown, making this a non-issue for rates right now. What is more of a concern is the need for Congress to raise the debt ceiling, or increase the maximum amount of debt the government can issue to fund operations. It is that topic that seems to be more of a stalemate than a temporary funding bill is, which is needed until a full budget can be passed. As we get closer to the deadlines, the more of an influence these matters will have on the markets.
Friday brings us three pieces of data, all of which will draw attention from traders. The first is August's Personal Income and Outlays at 8:30 AM ET. It gives us an indication of consumer ability to spend and current spending habits. This is relevant to the markets because consumer spending makes up such a large part of the U.S. economy. Rising income generally indicates that consumers have more money to spend, making economic growth more of a possibility. That is negative news for mortgage rates because bonds tend to thrive in weaker economic conditions. Forecasts are calling for a 0.2% rise in income and a 0.6% rise in spending. If we see weaker than expected readings, the bond market should react positively, leading to lower mortgage rates Friday. This report also includes the PCE index that the Fed primarily uses for gauging inflation. A surprise in it can also lead to a move in mortgage pricing.
Even more important will be the release of the Institute for Supply Management's (ISM) September manufacturing index at 10:00 AM ET Friday. This index is highly important because it measures manufacturer sentiment, giving us an indication of manufacturing sector strength. It is the first report each month that tracks the preceding month's activity. Friday's release is expected to show a September reading of 59.5, indicating that manufacturer sentiment slipped slightly from August's reading. A smaller than expected reading would be good news for bonds and likely lead to lower mortgage rates.
The final report of the week will be the University of Michigan's revised Index of Consumer Sentiment for September. The preliminary reading that was released earlier this month showed a 71.0 reading. Analysts are expecting to see no change, meaning consumer confidence was as strong as previously thought. Waning confidence is good news for bonds because consumers that are concerned about their own financial and employment situations are less likely to make a large purchase in the near future, limiting economic growth. Therefore, a lower than expected reading would be favorable news for rates.
Overall, Friday is the most important day of the week due to the significance of the scheduled data, assuming the political topics get worked out. Tomorrow may also be active since the Durable Goods Orders report is considered to be highly important. The best candidate for calmest day is Wednesday. We have plenty scheduled this week that is expected to affect rates. And, it follows a rough week that saw bonds break above a strong resistance level, pushing mortgage rates noticeably higher. We need to see weaker results in this week’s big reports for bond yields and mortgage rates to move lower.