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. In addition to the data, there are two potentially relevant Treasury auctions 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.
Tomorrow doesn’t have anything we need to be concerned with. At the time of posting this report, it looks as if stocks are going to extend Friday’s major sell-off that caused the Dow to shed almost 1,000 points. That could help start the week with an improvement in mortgage pricing.
The week's activities start early Tuesday 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 1.1% increase in new orders, indicating growth in the manufacturing sector. Weaker manufacturing activity is favorable news for mortgage rates.
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 or income, they will probably delay making large purchases. The latter is better for the bond market and mortgage rates because the potential slowdown in spending would help to restrict economic growth to a minimum. Forecasts show a decline from March's 107.2. The smaller the reading, the better it is for mortgage pricing.
Wednesday doesn’t have any relevant economic data for the markets to digest, but does have an afternoon Treasury auction scheduled that may affect rates during afternoon trading. 5-year Treasury Notes will be sold Wednesday, followed by 7-year Notes Thursday. 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 will be posted at 1:00 PM ET each auction day, so look for any reaction to come during early afternoon hours.
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 1.1% during the first three months of this year. A smaller increase in activity would be considered good news for mortgage rates.
Friday has three economic reports set for release, starting with Personal Income and Outlays data for March at 8:30 AM ET. 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 0.4% rise in income and 0.6% rise in spending. In this report is also the Fed's preferred inflation reading (PCE index) that will draw plenty of 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. This is bad news for bonds and mortgage rates. A smaller increase than the 1.1% 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 little change from the preliminary 65.7 reading of 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. Therefore, the lower the reading, the better the news it is for rates.
Overall, the most active day for rates is likely going to be Tuesday or Thursday unless something unexpected happens. Wednesday looks to be the best candidate for calmest day. Corporate earnings surprises can heavily influence stock trading and trickle down to bonds any day. It would be prudent to keep a close eye on the markets if still floating an interest rate and closing in the near future as we may see multiple days of noticeable changes in rates.