This holiday-shortened week brings us the release of five relevant economic reports for the markets to digest in addition to a couple Treasury auctions that have the potential to influence bond trading and mortgage rates. None of the reports are considered to be key data, but most of them do carry enough significance to affect mortgage rates if their results show sizable surprises. The financial and mortgage markets will be closed tomorrow in observance of the Memorial Day holiday and will reopen for regular trading Tuesday morning.
April's Durable Goods Orders will start this week's calendar early Tuesday morning. This data gives us an indication of manufacturing sector strength by tracking orders at U.S. factories for big-ticket products. These are items made with an expected life span of three or more years such as airplanes, appliances and electronics. It is currently expected to show a decline in new orders of approximately 0.6%, hinting that the manufacturing sector softened a little last month. That would be relatively good news for the bond market and mortgage rates, but this data is known to be quite volatile. Therefore, a small variance from forecasts will likely have little impact on Tuesday's mortgage rates. The larger the decline, the better the news it is for mortgage rates.
The Conference Board is next with their Consumer Confidence Index (CCI) at 10:00 AM Tuesday. This data measures consumer willingness to spend. If the index rises, it indicates that consumers felt better about their personal financial and employment situations and therefore are more apt to make large purchases in the near future. If confidence is sliding, analysts think consumer spending may slow in the near future. The latter is good news for the bond market because consumer spending makes up over two-thirds of the U.S. economy. A decline in the index should boost bond prices and push mortgage rates lower Tuesday morning while a larger than expected increase would likely cause rates to move higher. It is expected to show a reading of 94.0, down from April's 95.2 reading.
The final release of the day is April's New Home Sales report, also at 10:00 AM ET. It is the sister report of last week’s Existing Home Sales. This data gives us a similar measurement of housing sector strength and future mortgage credit demand, but tracks a much smaller portion of housing sales than that report did. Actually, it probably will not have much of an impact on mortgage pricing unless it shows a sizable variance from forecasts. Analysts are expecting to see gains in sales from March's level, meaning the new home portion of the housing sector strengthened last month.
Wednesday has nothing scheduled that is expected to affect mortgage rates except the first of this week's two Treasury auctions that are worth watching. The Fed will auction 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. On the other hand, strong sales usually make bonds more attractive to investors, bringing more funds into bonds. The buying of bonds that follows usually translates into lower mortgage rates. Results of the sales will be posted at 1:00 PM ET each auction day, so look for any reaction to come during afternoon hours Wednesday and Thursday.
The next report will be Friday's revision to the 1st quarter Gross Domestic Product (GDP) at 8:30 AM ET. This is the first of two revisions in the GDP that we get. The second revision to this index comes next month but isn't expected to carry much importance. The GDP is the sum of all goods and services produced in the U.S. and is considered to be the best measurement of economic growth. Last month's preliminary reading revealed a 0.2% annual rate of growth. Analysts expect a downward revision of 0.9% in this update, equating to economic contraction of 0.7%. If the revision comes in much stronger than expected, we may see the bond market react negatively and mortgage rates move higher because it would mean the economy was stronger than thought last quarter. It will be interesting to see how the markets react if we did have economic contraction during the first three months of the year since bonds tend to thrive during weaker economic conditions.
The last relevant data of the week will come from the University of Michigan, who will update their Index of Consumer Sentiment for May late Friday morning. This type of data is watched fairly closely because when consumers are feeling more confident about their own financial situations, they are more likely to make a large purchase in the near future. Rising confidence and the higher levels of spending that usually follow are considered negative news for bonds and mortgage rates. Friday's report is expected to show a small upward revision to this month's preliminary reading of 88.6. A higher reading would be considered bad news for bonds and mortgage pricing while a decline should help boost bond prices and lead to a slight improvement in rates.
Overall, I think Tuesday is the best candidate for most active day for mortgage rates this week although Friday's GDP reading will draw plenty of attention also if it does show a negative reading. With two relatively important reports scheduled for Friday, it may also be an active day. The least active day will probably be Wednesday unless the stock markets rally or show sizable losses.