This holiday-shortened week has only two relevant monthly economic reports for the markets to digest and neither is considered to be highly important. The stock and bond markets will be closed tomorrow for the Martin Luther King Jr holiday and will reopen for regular trading Tuesday.
The first item on this week’s calendar comes Wednesday afternoon when results of the 20-year Treasury Note auction are posted. These auctions show what type of demand investors have for long-term securities. If demand is strong in the sale, particularly from international buyers, we could see the broader bond market improve after results are posted at 1:00 PM ET like we did last week with the 10-year Note and 30-year Bond sales. On the other hand, lackluster interest in the securities may lead to an upward revision to rates before the end of the day.
The first economic release will be December's Housing Starts at 8:30 AM ET Thursday. It will tell us how many new home groundbreakings took place during the month. While this data gives us a small indication of housing sector strength, it is not known to be highly influential on mortgage rates. Accordingly, it will take a large variance from forecasts for the report to have a direct impact on mortgage rates. Forecasts show an increase in new home sales. A decline in sales would be favorable to mortgage rates.
Wrapping up this week’s calendar will be December's Existing Home Sales from the National Association of Realtors late Friday morning. This data will give us detailed information about housing sector strength and mortgage demand by tracking home resales in the U.S. It is expected to show a decline in sales from November's level, meaning the housing sector softened last month. Ideally, bond traders would like to see a large decline in sales, pointing towards sector weakness. This is because weaker housing makes broader economic growth more difficult. However, as long we don't see a significant surprise in its results, it shouldn't have a noticeable impact on mortgage rates.
Also worth noting is the fact that we are heading into corporate earnings season. As big-named companies report their results, stocks should react accordingly. Stronger than expected earnings will likely boost stocks and hurt bond prices, pushing mortgage rates higher. Generally speaking, news that is good for stocks is bad for bonds and mortgage rates. However, disappointing results could lead to lower mortgage rates. With little economic data or other events scheduled this week to drive trading, stocks may end up being the biggest influence on mortgage rates.
Overall, no day stands out as a strong candidate for most active day of the week. If wondering, Tuesday’s inauguration should be a non-event for the markets, especially mortgage rates. There is little data for the markets to digest, leaving stocks to be the focus several days. If the major stock indexes remain fairly calm, bonds and mortgage rates could follow suit. On the other hand, active stock markets could lead to noticeable moves in mortgage rates this week.