This week brings us the release of seven economic reports to be concerned with in addition to testimony from Fed Chairman Yellen and two potentially relevant Treasury auctions. A couple of the reports are considered to be highly important to the markets and mortgage rates. There is something scheduled each day that can move rates, so there is a strong chance of seeing an extremely active week for mortgage rates.
The first piece of data is January's Existing Home Sales report by the National Association of Realtors late tomorrow morning. This data tracks home resales throughout the country, giving us a measurement of housing sector strength. It is expected to show a decline in sales of existing homes, meaning the housing sector softened last month. Ideally, the bond market would like to see a sizable decline in sales because weak housing makes broader economic growth more difficult. Since long-term securities such as mortgage bonds tend to thrive during weaker economic conditions, weak housing numbers would be good news for mortgage rates.
February's Consumer Confidence Index (CCI) will be posted 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 a decline in confidence from the 102.9 reading in January to 99.3 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 than many thought.
Fed Chairman Yellen will deliver the Fed's semi-annual testimony on the status of the economy and monetary policy this week. She will be speaking to the Senate Banking Committee Tuesday and the House Financial Services Committee Wednesday. Both appearances are set to start at 10:00 AM ET. Her prepared statement on Tuesday will likely have the bigger influence on the markets but the Q&A session that follows may bring a surprise response also. Wednesday’s opening statement will probably mirror Tuesday’s so day two usually does not have the impact on the markets as day one does.
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 the 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. The larger the decline, the better the news it is for bonds and mortgage rates.
Thursday has a pair of monthly important reports scheduled for release, both at 8:30 AM ET. January's Durable Goods Orders data will give 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. Analysts are expecting to see a 1.8% increase in new orders, hinting at manufacturing sector growth.
The second report of the day is January's Consumer Price Index (CPI). It measures inflationary pressures at the consumer level of the economy. A significant surprise in this data can have a noticeable impact on the financial markets, especially long-term securities such as mortgage-related bonds. Inflation isn't exactly a concern currently, but there are many that feel that rapid inflation down the road is a threat, so analysts still track the readings closely. The report is expected to show a 0.6% decline in the overall index and a 0.1% rise in the more important core data that excludes food and energy costs. If we see weaker than expected readings, bond prices should rise and mortgage rates will likely fall Thursday morning as long as long as the Durable Goods Orders data doesn’t offset.
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 2.1%, down from the initial estimate of 2.6% 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 larger 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 93.6. 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 GDP revision 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 translates into lower mortgage rates.
Overall, I think Tuesday is the most important day of the week due to Fed Chair Yellen’s congressional testimony although Thursday and Friday’s economic data can also cause a fair amount of volatility in the markets. The calmest could be Tuesday but we should still see some movement in rates that day also.