This week brings us the release of seven economic reports to be concerned with in addition to two potentially relevant Treasury auctions. A couple of the reports are considered to be important to the markets and mortgage rates. There is something scheduled each day that can move rates except for today, so there is a strong chance of seeing a pretty active week for mortgage rates.
The first piece of data is January's Existing Home Sales report by the National Association of Realtors late Tuesday 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 also 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 98.1 reading in January to 97.2 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.
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’s only monthly important report is January's Durable Goods Orders data at 8:30 AM ET. It 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 2.0% increase in new orders, hinting at manufacturing sector growth. This data is known to be volatile from month to month, so don’t be surprised if a modest variance from forecasts does not have much of an influence on Thursday’s mortgage rates.
Friday has the remaining three 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 0.4%, down from the initial estimate of 0.7% 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.
January's Personal Income and Outlays data is also scheduled for release at 8:30 AM ET Friday morning. This data gives us an indication of consumer ability to spend and current spending habits. Current forecasts call for an increase in income of 0.4% while spending is expected to rise 0.3%. Lower levels of income means consumers have less money to spend. And weaker levels of consumer spending helps limit overall economic growth, making long-term securities such as mortgage-related bonds more attractive to investors. Therefore, the weaker the readings, the better the news it would be for mortgage rates.
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 90.7. 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 and Personal Income & Outlays reports 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 Friday is the most important day of the week but Thursday may be active also. The calmest could be Monday or Wednesday but we should still see some movement in rates those days.