This week has five monthly economic reports for the markets to digest in addition to the Fed Beige Book and a congressional appearance by Fed Chairman Powell. Two of those economic releases are considered to be highly important and can heavily affect the markets. The week starts light with nothing scheduled tomorrow, but don’t be surprised to see bonds and mortgage rates give back some of Friday’s strong rally.
Chairman Powell will kick-off this week's activities Tuesday morning when he speaks before the Senate Banking Committee as part of the Coronavirus Aid Act. He is scheduled to appear at 10:00 AM ET, but he often releases his prepared statement before actually starting his testimony. The markets listen carefully anytime he speaks publicly, especially during congressional testimony. That means this event has the potential to be a market-mover, causing noticeable volatility in the financial and mortgage markets.
Also late Tuesday morning is the release of November's Consumer Confidence Index (CCI). 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, it is thought 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. Traders are expecting to see the index slip a couple points from October’s 113.8, meaning surveyed consumers were less optimistic about their own financial situations this month than they were last month. The weaker the reading, the better the news for mortgage rates. Although, the markets will likely be much more focused on Chairman Powell’s testimony than this report.
Wednesday begins with the release of November's ADP Employment report at 8:15 AM ET that tracks changes in private-sector jobs using the company's payroll processing clients as a base. While it does draw attention, it is my opinion that it is overrated and is not a true reflection of the broader employment picture. It also is not very accurate in predicting results of the monthly government report that follows a couple days later. Still, because we sometimes see a noticeable reaction to the report, it is on this week's calendar. The markets are expecting to see 520,000 new private-sector payrolls last month. A weaker number would be good news for mortgage rates.
Next up is November's Institute for Supply Management's (ISM) manufacturing index at 10:00 AM ET.. This highly important index measures manufacturer sentiment and can have a considerable impact on the financial markets and mortgage rates. Current forecasts call for a rise from October’s reading, which was announced as 60.8. A weaker reading than the expected 61.0 would be good news for the bond market and mortgage rates. The lower the reading the better the news it is for bonds because waning sentiment indicates a slowing manufacturing sector and makes broader economic growth less likely.
The Federal Reserve's Beige Book will be released at 2:00 PM ET Wednesday. This report is named simply after the color of its cover and details economic conditions throughout the U.S. by Fed region through business contacts. Since the Fed uses this info during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any surprises. Of particular interest is information regarding inflation, unemployment or future hiring. If there is a reaction to the report, it will come during mid-afternoon trading.
Friday has two reports scheduled, one of which is the other extremely important and highly influential to the financial and mortgage markets scheduled this week. That would be November's Employment report at 8:30 AM ET. The Employment report contains many employment statistics and readings. Most watched are the unemployment rate, the number of news jobs added or lost during the month and average hourly earnings. Current forecasts show the unemployment rate to have slipped 0.1% to 4.5% while 530,000 new jobs were added back to the economy. The income reading is forecasted to show an increase of 0.4%. The ideal scenario for mortgage shoppers would be a higher unemployment rate, a much smaller increase in payrolls (or a decline) and no change in the earnings reading. If we hit the trifecta with all three, we should see bond prices rise and mortgage rates move noticeably lower Friday. However, stronger than expected readings may fuel bond selling that would lead to higher mortgage rates.
October's Factory Orders report will close out this week's calendar late Friday morning. This Commerce Department report is similar to the Durable Goods Orders report that was released last week, except this one includes new orders for both durable and non-durable goods. It usually doesn't have a significant influence on bond trading since a good portion of the data has previously been made public. Analysts are expecting to see a 0.4% rise in new orders. Favorable news would be a weaker reading because it would signal softer than expected manufacturing sector activity. However, the Employment report will draw all the attention Friday, limiting the importance of this one even more than usual.
Overall, Friday is the best candidate for most important day for rates due to the Employment report being released, but there is a good chance of seeing noticeable movement in pricing multiple days, including tomorrow and Tuesday. The calmest day may be Thursday unless there is a big surprise in the weekly unemployment figures. With such a busy week, watching the markets carefully would be a good idea if still floating an interest rate and closing soon.