This week brings us the release of six economic reports and two Treasury auctions for the bond market to digest in addition to another FOMC meeting. We have data or other events that are expected to influence mortgage rates set every day except tomorrow, so we could see plenty of movement in rates this week. The data scheduled this week ranges from moderately to extremely important, so some reports will have a much bigger impact on trading than others. We also need to keep an eye on the stock markets as they can be heavily influential on bond market direction and mortgage rates.
There are two reports scheduled for release Tuesday, starting with the Durable Goods Orders report for September at 8:30 AM ET. This report gives us a measurement of manufacturing sector strength by tracking orders at U.S. factories for big-ticket items, or products that are expected to last three or more years. Analysts are currently calling for an increase in new orders of approximately 0.7%. If we see a much larger increase in orders, mortgage rates will probably rise as bond prices fall. On the other hand, a significantly weaker than expected reading should be good news for the bond market and mortgage rates, but this data can be quite volatile from month to month and is difficult to forecast. Therefore, a small variance from forecasts likely will have little impact on Tuesday's bond trading or mortgage pricing.
October's Consumer Confidence Index (CCI) will be released at 10:00 AM ET Tuesday. This Conference Board index gives us a measurement of consumer willingness to spend. It is expected to show an increase in confidence from last month's 86.0 reading. That would mean that consumers felt better about their own financial and employment situations than last month, indicating they are more likely to make large purchases in the near future. That would be bad news for the bond market because consumer spending makes up a significant part of our economy. Current forecasts are showing a reading of 87.2. The lower the reading, the better the news it is for mortgage rates.
This week's FOMC meeting is a two-day meeting that begins Tuesday and adjourns Wednesday afternoon. There really is no possibility of the Fed changing key short-term interest rates this week. But market participants will be looking at the post-meeting statement for any indication of a change in Fed sentiment or possible further hints on when they will make their first rate increase. The meeting will adjourn at 2:00 PM ET Wednesday, so look for any reaction to the statement to come during afternoon hours.
The preliminary reading of the 3rd Quarter Gross Domestic Product (GDP) will be released at 8:30 AM ET Thursday morning. The GDP is considered to be the benchmark measurement of economic growth because it is the total of all goods and services produced in the U.S. and therefore is likely to have a major impact on the financial markets and mortgage pricing. There are three versions of this report, each a month apart. Thursday's release is the first and usually has the biggest influence on the markets. Current forecasts call for an increase of approximately 3.0% in the GDP, which would mean that the economy grew at a noticeably slower pace than the 2nd quarter's 4.6% rate. If this report shows a much smaller increase, I am expecting to see the bond market rally and mortgage rates fall. However, a larger than expected rise could lead to a rally in stocks, bond selling and a sizable increase in mortgage pricing Thursday morning.
Friday has the remaining three reports scheduled that may affect mortgage rates. The 3rd Quarter Employment Cost Index (ECI) will be released at 8:30 AM ET. It is the least important of the day’s three reports. This data tracks employer costs for salaries and benefits, giving us an indication of wage inflation pressures. Rapidly rising costs raises wage inflation concerns and may hurt bond prices. It is expected to show an increase in costs of 0.5%. A smaller than expected increase would be good news for mortgage rates, but this is not one of the more important reports of the week. Therefore, it will likely take a large variance from forecasts for this report of have a noticeable influence on mortgage pricing.
September's Personal Income and Outlays report will also be posted early Friday morning. This data gives us an indication of consumer ability to spend and current spending habits. It is important to the markets because consumer spending makes up over two-thirds of the U.S. economy. Rising income generally indicates that consumers have more money to spend, making economic growth more of a possibility. This is bad news for the bond market and mortgage rates because it raises inflation concerns, making long-term securities such as mortgage related bonds less attractive to investors. Analysts are expecting to see a 0.3% increase in income and a 0.1% rise in spending. Smaller than expected increases in both readings would be good news for the bond market and mortgage pricing.
The week's last report comes just before 10:00 AM ET Friday when the University of Michigan updates their Index of Consumer Sentiment for this month. This report is moderately important because it helps us measure consumer confidence, which is believed to indicate consumers' willingness to spend. Current forecasts show this index remaining at its preliminary reading of 86.4. Good news for mortgage rates would be a sizable decline in the index.
This week also has Treasury auctions scheduled the first three days. The only two that have the potential to influence mortgage rates are Tuesday's 5-year and Wednesday's 7-year Note sales. If those sales are met with a strong demand from investors, particularly Wednesday's auction, bond prices may rise during afternoon trading. This could lead to improvements to mortgage rates shortly after the results of the sales are posted at 1:00 PM ET each day. But a lackluster investor interest may create selling in the broader bond market and lead to slight upward revisions to mortgage rates.
Overall, it appears Wednesday or Thursday could be the most active day for mortgage rates and tomorrow is the best candidate for lightest. The importance of Tuesday and Friday's reports makes them likely to be active day also, although I suspect the most movement in rates will take place the middle days due to the FOMC meeting and GDP report.