This week brings us the release of seven 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, so we could see plenty of movement in rates this week. The data scheduled this week ranges from minor to extremely important, meaning some reports will have a much bigger impact on trading than others.
September's New Home Sales starts the week at 10:00 AM ET today. This data covers the small percentage of home sales that last week’s Existing Home Sales report didn't include. It is expected to show a slight decline in sales of newly constructed homes, but I don’t see this report having much of an impact on tomorrow’s mortgage rates. I believe the markets will be much more focused on events coming later in the week.
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 a decline in new orders of approximately 1.3%. If we see a large increase in orders, mortgage rates will probably rise as bond prices fall. On the other hand, a significantly larger than expected decline 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 effect 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 a drop in confidence from last month's 103.0 reading. That would mean that consumers did not feel as good about their own financial and employment situations as they did last month, indicating they are less likely to make large purchases in the near future. That would be good news for the bond market because consumer spending makes up over two-thirds of our economy. Current forecasts are showing a reading of 102.5. 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. Some market participants feel this is when the Fed will make their first increase to key short-term interest rates since 2006. Since even the Fed has indicated they expect a rate hike before the end of the year, suspense is building that it will come this week. There is only one more meeting scheduled this year, so if it doesn’t come this week the odds rise sharply it will come at December’s meeting. It is my opinion that we will not see a move at this meeting. I think December is the earliest with a decent chance it will not come until early 2016. The meeting will adjourn at 2:00 PM ET Wednesday, so look for plenty of reaction and volatility to the post-meeting statement during mid-afternoon trading.
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 1.6% in the GDP, which would mean that the economy grew at a noticeably slower pace than the 2nd quarter's 3.9% 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 raise 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. That means will 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 such a large part 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 0.2% increase in income and a 0.2% 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 rising from its preliminary reading of 92.1 to 92.6. 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 Wednesday's 5-year and Thursday'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.