This week brings us the release of seven economic reports that may affect mortgage rates in addition to an FOMC meeting and a couple Treasury auctions. One those reports is considered to be extremely important to the financial and mortgage markets and can cause a great deal of volatility. Throw in the FOMC meeting and we have the makings of a highly important week, not only for mortgage rates but also for the broader financial markets.
The week kicks off late this morning when March's New Home Sales numbers are posted. This Commerce Department report tracks a much smaller portion of all home sales than last week’s Existing Home Sales report did. It also gives us an indication of housing sector strength and future mortgage credit demand, however, unless it varies greatly from analysts' forecasts I am not expecting the data to cause much movement in mortgage rates. Analysts are currently forecasting an increase in sales of newly constructed homes. Good news for mortgage rates would be a sizable decline in sales.
Tuesday has two reports scheduled that we need to watch. The first of those two is the more important and comes at 8:30 AM ET. That is when March's Durable Goods Orders will be released. This report gives us an indication of manufacturing sector strength by tracking orders for big-ticket items at U.S. factories. These are products that are expected to last three or more years, such as appliances, electronics and airplanes. Current forecasts are calling for an increase in new orders of 1.7%. This would be a sign of manufacturing sector strength, but this data can be quite volatile from month-to-month. Therefore, a small variance between forecasts and the actual results will not heavily influence the markets or mortgage rates. A large decline would be considered good news for bonds and mortgage pricing, while a large rise would indicate strength in the sector. A sign of solid manufacturing growth could lead to higher mortgage rates Tuesday.
April's Consumer Confidence Index (CCI) will be posted at 10:00 AM ET Tuesday. This index is considered to be an indicator of future spending by consumers. The Conference Board surveys 5,000 consumers from across the country about their personal financial situations. If sentiment is strong or rising, it is believed that consumers are more apt to make large purchases in the near future. However, if they are concerned about issues such as job security and savings, they will probably delay making large purchases. The latter is better for the bond market and mortgage rates because the expected slowdown in spending would keep inflation and economic growth to a minimum. On the other hand, a sizable increase could hurt the bond market, pushing mortgage rates higher Tuesday. It is expected to show a reading of 96.0, which would be a small decline from March's 96.2 reading. The lower the reading, the better the news it is for mortgage rates.
This week's FOMC meeting will begin Tuesday and adjourn Wednesday afternoon. It will likely adjourn with an announcement of no change to key short-term interest rates, but we may see some volatility in the markets following the post-meeting statement. If the statement gives any hint of change in their current forecasts on when they expect to adjust key short-term interest rates again, we could see a sizable change to mortgage rates Wednesday afternoon. This meeting will not be followed by a Fed press conference or economic projections.
Thursday has the most important report, not only this week but arguably in general. At 8:30 AM ET, the preliminary version of the 1st Quarter Gross Domestic Product (GDP) will be released. There is a strong argument to be made that this is the single most important report that we see on a regular basis. The GDP is the sum of all products and services produced in the U.S. and is considered to be the best measure of economic growth or contraction. I expect this report to cause sizable movement in the financial markets Thursday and therefore the mortgage market also. Analysts are expecting it to show that the economy grew at an annual rate of 0.8% during the first three months of this year. That would be a much slower pace than the 1.4% pace of the final quarter of last year. A weaker rate of growth would be considered good news for mortgage rates. But a stronger than expected reading would almost certainly cause stock prices to rise and bond prices to fall, leading to higher mortgage rates Thursday morning.
Friday has the final three economic reports, starting with March's Personal Income and Outlays data at 8:30 AM ET. It helps us measure consumers' ability to spend and current spending habits. This information is important to the mortgage market due to the influence that consumer spending-related data has on the financial markets. If a consumer's income is rising, they have the ability to make additional purchases in the near future, fueling economic growth. This raises inflation concerns and has a negative impact on the bond market and mortgage rates. Current forecasts are calling for a 0.3% increase in the income reading and a 0.2% rise in spending. If we see smaller than expected readings, the bond market should open higher Friday morning.
Also early Friday is the 1st Quarter Employment Cost Index (ECI). This index tracks employer costs for wages and benefits, giving us a measurement of wage-inflation. If it shows a large increase, we may see wage inflation concerns rise as employers will need to pass those increases into the pricing of their products and services. That would cause the bond market to fall and mortgage rates to rise. A smaller than expected increase would be good news for the bond market and mortgage pricing although I doubt this report will affect mortgage rates. Current forecasts are showing a rise of 0.6%.
The week closes with the University of Michigan’s revised Index of Consumer Sentiment for April just before 10:00 AM ET Friday. This report gives us an indication of consumer sentiment and their willingness to spend. Current forecasts are calling for a rise from the preliminary reading of 89.7. This means that surveyed consumers were a little more optimistic about their own financial situations as they were earlier this month. This data is relevant because if consumers feel better about their own financial and employment situations, they are more apt to make a large purchase in the near future, fueling economic growth. I don't expect this report to have a significant impact on bonds and mortgage pricing unless it shows a noticeable revision.
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 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 government securities more attractive to investors and bring 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.
Overall, I am expecting it to be a pretty active week for the markets and mortgage rates. We have several days that appear likely to be particularly volatile. Wednesday looks to be the best candidate for most important due to the FOMC meeting but Thursday’s GDP reading can easily be a market-mover. The calmest day could be Monday, although I would not be surprised to still see some movement as investors prepare for this week's activities.