This week brings us the release of five pieces of economic data that may influence mortgage rates in addition to two Treasury auctions and the annual Jackson Hole Fed conference. There is nothing of importance set for tomorrow, but there is at least one event or report scheduled every other day of the week. Only one of the reports can be considered very important. However, with so much going on we still could see an active week in the financial and mortgage markets.
July's New Home Sales data is the first report of the week, coming Tuesday morning at 10:00 AM ET. This report will give us an indication of housing sector strength and mortgage credit demand, but tracks only a small portion of all home sales. The majority of U.S. home sales are covered in the upcoming Existing Home Sales report. This data usually doesn't have much of an impact on bond prices or mortgage rates unless it varies greatly from forecasts. Current forecasts are calling for a decline in sales of newly constructed homes from June to July. An increase in sales would indicate housing sector strength, making the data negative for mortgage rates.
Next up is July's Existing Home Sales report late Wednesday morning. The National Association of Realtors will release this report, giving us another measurement of housing sector strength. It covers a very high percentage of all home sales in the U.S., but usually does not have a major influence on bond trading and mortgage rates unless it varies greatly from analysts' forecasts. It is expected to show a small decline from June's sales, meaning the housing sector softened last month. This would generally be good news for the bond market and mortgage rates because a strengthening housing sector makes broader economic growth more likely. But unless the decline is much larger than current forecasts, the report will likely have a minimal impact on Wednesday's mortgage pricing.
July's Durable Goods Orders will be released by the Commerce Department early Thursday morning, giving us an important indication of manufacturing sector strength. This report tracks orders at U.S. factories for big-ticket items, or products that are expected to last three or more years such as appliances, electronics and airplanes. Analysts are expecting to see an increase of 3.5% in new orders, pointing towards manufacturing sector strength. This data is known to be quite volatile from month to month, so an increase of this size doesn't raise too much concern about the economy. However, a much smaller increase is good news for the bond market and mortgage rates as it means manufacturing activity is not as strong as many had thought. A secondary reading the excludes more volatile transportation-related orders is expected to rise 0.4%. The softer the reading, the better the news it is for the bond and mortgage markets.
Friday has two economic reports set for release, starting with the first revision to the 2nd Quarter Gross Domestic Product (GDP) at 8:30 AM ET. The GDP is the total of all goods and services produced in the U.S. and is considered to be the best measurement of economic growth or contraction. This reading is the second of three that we see each quarter. Last month's preliminary reading revealed that the economy grew at an annual rate of 1.2%. Friday's revision is expected to show that the GDP actually rose 1.1%, meaning the economy was a bit weaker than previously thought from April through June. A smaller than expected reading should help lower mortgage rates, especially if the inflation portion of the release does not get revised higher. There will be a final revision issued next month, but it probably will have little impact on mortgage rates since traders will be more interested in the current quarter's activity.
The second report of the morning Friday will be the University of Michigan's revised Index of Consumer Sentiment for August. This sentiment index helps us track consumer willingness to spend. It is expected to show a slight increase from August's preliminary reading of 90.4. If it revises lower, consumers were less confident about their personal financial situations than previously thought. This would be good news for the bond market and mortgage rates because waning confidence usually means that consumers are less likely to make large purchases in the near future. The lower the reading we get, the better the news it is for mortgage shoppers.
There are a couple of Treasury auctions that may affect bond trading and mortgage rates this week also. There are auctions several days, but the two relevant ones are Wednesday's 5-year Note and Thursday's 7-year Note sales. Results of these will be posted at 1:00 PM ET each day. If investor interest is strong in the auctions, we can expect the broader bond market to rally and mortgage rates to move lower. However, lackluster demand could lead to bond selling and higher mortgage rates Wednesday and Thursday afternoons.
Also worth noting is the annual central banker conference in Jackson Hole, Wyoming. There have been major events to come out of this event in the past while others have been non-factors. Federal Reserve Chair Janet Yellen is scheduled to speak this year, so all eyes will be on her speech at 11:00 AM Friday. The conference runs Thursday through Saturday, so we could still see the markets react to something from this event. Any impact on trading or mortgage rates will happen Thursday or Friday.
Overall, I am expecting to see the most movement in rates Thursday, although Friday could be a fairly active day also. We need to watch the stock markets for rate direction also as significant selling in them could help bring funds into bonds. Generally speaking, stock strength often hurts the bond market while stock losses make bonds more appealing to investors. This should be a more active week for mortgage rates than last week.