This holiday-shortened week brings us the release of six relevant economic reports for the markets to digest in addition to a couple of Treasury auctions that have the potential to affect rates. All of the week's data is being posted over three days, partly due to the Thanksgiving holiday, so the first part of the week should be the most interesting for mortgage shoppers.
October's Existing Home Sales data will start the week’s calendar late this morning. The National Association of Realtors will give us a measurement of housing sector strength and mortgage credit demand by tracking home resales in the U.S. This report is expected to show a small decline, meaning the housing sector softened slightly last month. That would be relatively good news for the bond market and mortgage pricing, but unless it shows a significant surprise, it will likely not have a major impact on mortgage rates.
Tuesday morning has two reports set for release, starting with the first revision to the 3rd Quarter Gross Domestic Product (GDP) at 8:30 AM ET. It is expected to show an upward revision to last month's preliminary reading of a 1.5% annual rate of growth. The GDP measures the total of all goods and services produced in the U.S. and is considered to be the benchmark measurement of economic growth. Current forecasts call for a reading of approximately 2.0%, meaning that there was more economic activity during the third quarter than previously thought. This would be bad news for the bond market and mortgage rates because strengthening economic growth makes bonds less appealing to investors that hurts bond prices and mortgage rates.
November's Consumer Confidence Index (CCI) will be released late Tuesday morning by the Conference Board. This index helps us track consumer willingness to spend. If a consumer's confidence in their own financial and employment situation is strong, analysts believe that they are more apt to make larger purchases, fueling economic growth. This is important because consumer spending makes up over two-thirds of the U.S. economy and makes long-term securities such as mortgage-related bonds less attractive to investors. Analysts are expecting to see an increase in confidence from last month's level, meaning surveyed consumers were more optimistic about their own financial situations this month than they were last month. A weaker reading than the 99.6 that is expected would be good news for mortgage rates, while a stronger reading could push mortgage rates higher Tuesday.
Wednesday has the remaining three economic reports that we need to be concerned with. The first is October's Durable Goods Orders at 8:30 AM ET. This data helps us measure manufacturing strength by tracking orders for big-ticket items or products that are expected to last three or more years, such as airplanes, appliances and electronics. This data is known to be quite volatile from month-to-month, so sizable swings from the previous month are fairly normal. It is expected to show a 1.5% rise in new orders. A smaller than expected increase would be considered good news for the bond market and mortgage rates as it would indicate the manufacturing sector was not as strong as thought. We need to see a sizable variance from forecasts though for the markets to have a noticeable reaction due to the usual volatility in the data. It is worth noting though that this is one of the more important reports we get each month.
October's Personal Income and Outlays data is the second report of the day. This data measures consumers' ability to spend and their current spending habits. It is important because consumer spending is such a large part of the U.S. economy. It is expected to show that income rose 0.4% and that spending increased 0.3%. Weaker than expected readings would mean consumers had less money to spend and were spending less than thought. That would be favorable news for bonds and could lead to improvements in mortgage rates Wednesday morning.
October's New Home Sales report will close out the week's economic calendar. It will give us an indication of housing sector strength, but is the week's least important release. Analysts are expecting to see an increase between September and October's sales of newly constructed homes. It will take a large change in sales for this data to influence mortgage rates, partly because this report tracks such a small portion of all home sales.
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 Treasury Notes Tuesday and 7-year Notes on Wednesday. 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 in mortgage rates. However, strong investor demand usually make bonds more attractive to investors and brings more funds into the bond market. The buying of bonds that follows often translates into lower mortgage rates. Results of the Tuesday’s sale will be posted at 1:00 PM ET while Wednesday’s will be at 11:30 AM ET. Any reaction to the sales will come shortly after results are posted.
The financial markets will be closed Thursday in observance of the Thanksgiving Day holiday. There will not be an early close Wednesday ahead of the holiday, but the stock and bond markets will close early Friday and will reopen next Monday morning. I suspect that Friday will be a very light day in bond trading as many market participants will be home. The same can be said to some degree Wednesday afternoon also. Banks have to be open Friday, but we will likely see little change to mortgage rates that day.
Overall, I am expecting Wednesday to be the busiest day for the bond market and mortgage rates with three of the week's reports scheduled, but Tuesday is likely to be pretty active also. The calmest day of the week will most likely be Friday as many traders will be home for the long weekend rather than in the office working.