Mortgage Market Update
This week brings us the release of only four economic reports that we need to be concerned with, in addition to a Treasury auction midweek and a couple of Fed speeches. The week begins lightly with nothing of importance set for tomorrow.
Despite the holiday, we did get a moderately important economic report Friday morning. March’s Industrial Production report showed a 0.9% rise in output at U.S. factories, mines and utilities. This was higher than expected, hinting at growth in manufacturing activity. Accordingly, we should consider the data to be bad news for bonds and mortgage rates. Fortunately, the report doesn’t carry a high level of importance, meaning it should not have an impact on Monday’s post-holiday trading or mortgage rates.
The first of this week’s activities will be the release of March's Housing Starts report at 8:30 AM ET Tuesday. This data tracks groundbreakings of new home construction and gives us a measurement of housing sector strength. The report is expected to show a slight decline in new starts last month, indicating weakness in the new home portion of the housing sector. Good news for rates would be a sizable decline, but this data doesn’t draw a high level of interest. It will take a large variance from forecasts to have a noticeable impact on mortgage pricing.
Wednesday has a morning report and two afternoon events scheduled that may have a minor impact on rates. Starting the day’s calendar is March's Existing Homes Sales numbers from the National Association of Realtors at 10:00 AM ET that gives us an indication of housing sector strength and mortgage credit demand. It can influence mortgage pricing if it shows a sizable variance from forecasts. Ideally, the bond market would like to see a large decline in home resales because a softening housing sector makes broader economic growth more difficult. Analysts are expecting to see a decrease in sales between February and March. The larger the decline, the better the news it is for bonds and mortgage rates.
There is a 20-year Treasury Note auction taking place Wednesday with results set to be posted at 1:00 PM ET. These types of sales don't directly affect mortgage rates but can impact broader bond trading sentiment that has the potential to indirectly move rates slightly. A strong demand from investors could lead to bond gains and a minor improvement in mortgage pricing Wednesday afternoon. On the other hand, a weak interest in the securities may cause some pressure in bonds and potentially, mortgage rates.
The Federal Reserve's Beige Book report will be posted at 2:00 PM ET Wednesday. It is named simply after the color of its cover but provides opinion on economic conditions throughout the U.S. by Fed region. Since the Fed relies heavily on the contents of this report during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any significant surprises. Any reaction will come during mid-afternoon trading Wednesday.
Leading Economic Indicators (LEI) for March will close out this week’s economic releases at 10:00 AM ET Thursday. This Conference Board index attempts to predict economic activity over the next three to six months. It is considered to be only a moderately important report, so at best we can expect to see a slight movement in rates as a result of this data. The report is expected to show a 0.3% rise from February's reading, indicating modest economic growth over the next several months. Favorable news for mortgage rates would be a weaker reading.
Also worth noting is a week of International Monetary Fund (IMF) meetings and discussions that have the potential to affect the global markets. Our Fed Chairman Powell is set to speak at 1:00 PM Thursday. He also is doing the opening remarks of a different convention at 11:00 AM ET, but the afternoon speech is likely to draw much more attention from market participants. The IMF conference is a wild card of sorts as something unexpected can be said or announced at any time, causing volatility in the markets. There is no way to predict what will happen or if this will be a positive or negative event for rates.
Overall, there is little to be concerned about in this week’s economic data. None of what is being released is considered to be a key report or expected to cause heavy selling or buying in the markets. The most important day for rates could be Wednesday or possibly Thursday if Fed Chair Powell says something unexpected and influential. The calmest day could be Friday unless something surprising transpires. We need to keep in mind that corporate earnings season is picking up momentum this week also. Generally speaking, good news for stocks is bad news for bonds and mortgage rates.