This week brings us the release of five economic reports to be concerned with in addition to testimony from Fed Chairman Yellen and two potentially relevant Treasury auctions. None of the reports can be considered key or highly important to the markets, but a couple of them certainly carry enough significance to affect mortgage pricing. There is something scheduled four of the five days that can move rates, with tomorrow being the sole empty day of the week.
The first piece of data is February's Consumer Confidence Index (CCI) at 10:00 AM ET Tuesday morning. This Conference Board index measures consumer confidence in their personal financial situations, giving us a measurement of consumer willingness to spend. If consumers are feeling good about their own financial and employment situations, they are more apt to make large purchases in the near future. Since consumer spending makes up over two-thirds of the economy, related data is considered important in terms of gauging economic activity. It is expected to show little change in confidence from the 80.7 reading in January to 80.8 this month. A lower reading would be considered good news for bonds and mortgage rates since it would indicate consumers are less likely to make a large purchase in the near future.
January's New Home Sales report will be posted at 10:00 AM ET Wednesday morning. This is the least important report of the week, and is the sister report to last week's Existing Home Sales data. They measure housing sector strength and mortgage credit demand, but usually do not have a significant impact on bond trading or mortgage rates unless they show significant surprises. Wednesday’s report is expected to show a decline in sales of newly constructed homes, hinting at weakness in the new home portion of the housing sector. Ideally, the bond market would prefer to see noticeable housing sector weakness because it makes broader economic growth more difficult and bonds tend to thrive during weaker economic conditions.
January's Durable Goods Orders data will be released at 8:30 AM ET Thursday morning. This report gives us an important measurement of manufacturing sector strength by tracking orders at U.S. factories for items expected to last three or more years. Products such as electronics, refrigerators, airplanes and autos are examples of these big-ticket items. A larger decline than the 1.1% that is expected would be good news for the bond market and mortgage rates as it would point towards manufacturing sector weakness. This data is known to be quite volatile from month-to-month, so large swings are fairly normal. A small variance from forecasts would not cause much concern or joy in the markets.
Fed Chairman Yellen will deliver day two of the Fed's semi-annual testimony on the status of the economy and monetary policy late Thursday morning. She will be speaking to the Senate Banking Committee, which was postponed from its originally scheduled date two weeks ago due to weather. Day one in front of the House Financial Services Committee was completed. Since the prepared statement by Chairman Yellen is expected to mirror her previous appearance, any noticeable reaction in the financial or mortgage markets will likely come as a result of a response during the Q&A portion of the proceeding. She will appear at 10:00 AM ET Thursday, so any reaction will probably come during late morning trading.
Friday has the remaining two relevant pieces of economic data. The first of two revisions to the 4th Quarter GDP reading is scheduled for release at 8:30 AM ET Friday morning. The GDP is considered the benchmark reading of economic growth or contraction because it is the total sum of all goods and services produced in the U.S. Analysts' forecasts currently call for an annual rate of growth of 2.6%, down from the initial estimate of 3.2% that was posted last month. It will be interesting to see where this figure falls and what its impact on the markets will be. Generally speaking, higher levels of activity are bad news for the bond market, while a downward revision would be good news for bonds and could lead to improvements in mortgage pricing Friday.
The University of Michigan's revision to their Index of Consumer Sentiment for February will close out the week’s calendar just before 10:00 AM ET Friday. Current forecasts show this index rising slightly from its preliminary estimate of 81.2. This index is fairly important because it helps us measure consumer confidence that translates into consumer willingness to spend, but is not considered to be a major market mover. This means it will probably not have a significant impact on mortgage rates, especially with other important data being released Friday morning.
In addition to this week's economic reports, there are two relatively important Treasury auctions that may also influence bond trading enough to affect mortgage rates. There will be an auction of 5-year Notes Wednesday and 7-year Notes on Thursday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions to mortgage rates. However, sales with higher levels of investor demand usually make bonds more attractive to investors and brings additional funds into the bond market. The buying of bonds that follows usually translates into lower mortgage rates.
Overall, Thursday is the best candidate for most active day of the week in terms of mortgage rate movement with the Durable Goods report, Chairman Yellen’s congressional appearance and a Treasury auction taking place. Tomorrow is the only day with nothing of importance set, so we can label it the least important day. I suspect it will be a fairly active week for mortgage rates, but not a significantly volatile week unless something unexpected happens. Still, it would be prudent to maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.