This week brings us the release of seven monthly and quarterly economic releases that have the potential to affect mortgage rates in addition to two days of Fed congressional testimony. The week starts off light but the middle days are likely to be very active for the financial and mortgage markets.
The week will start with January's New Home Sales report at 10:00 AM ET tomorrow morning. This is the least important report of the week and is the sister report to last week’s Existing Home Sales data. It also measures housing sector strength and mortgage credit demand, but usually does not have a significant impact on bond trading or mortgage rates unless it shows a significant surprise. Tomorrow's report is expected to show an increase in sales of newly constructed homes, hinting at strength in the new home portion of the housing sector. The smaller the number of sales, the better the news it is for bonds and mortgage rates.
January's Durable Goods Orders data will give us an important measurement of manufacturing sector strength early Tuesday morning. It tracks orders at U.S. factories for items expected to last three or more years, such as electronics, refrigerators and airplanes. Analysts are expecting to see a 2.0% decline in new orders, pointing to manufacturing sector weakness. It is worth noting that this data is known to be quite volatile from month to month, so large swings in the headline reading are common.
February's Consumer Confidence Index (CCI) will be posted late 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 growth. It is expected to show an increase in confidence from the 125.4 reading in January to 126.5 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 had thought.
New Fed Chairman Jerome Powell will deliver the Fed's semi-annual testimony on the status of the economy late Tuesday and Thursday mornings. He will be speaking to the House Financial Services Committee Tuesday morning and the Senate Banking Committee Thursday. Market participants will watch his words very closely. The Fed is required to deliver this testimony twice a year, which is considered to be of extreme importance to the financial markets. We almost always see the markets move as a result of what is said during this testimony. Look for him to address our employment situation, inflation, stock gains and global political/financial issues and their impact on our economy. His testimony begins at 10:00 AM ET with a prepared statement which is then followed by Q & A with committee members. His prepared words are expected to be released prior to appearing, so we could see a reaction early Tuesday morning. I am expecting to see the markets fluctuate Tuesday morning, possibly affecting mortgage rates also. The first day of testimony usually causes the most volatility because the prepared statement made on the second day often differs little from that of the first day.
The first of two revisions to the 4th Quarter GDP reading is scheduled for release at 8:30 AM ET Wednesday 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 2.5%, down slightly from the initial estimate of 2.6% 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 Wednesday.
January's Personal Income and Outlays data is scheduled for release at 8:30 AM ET Thursday 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 0.3% while spending is expected to rise 0.2%. 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 Institute for Supply Management (ISM) will release their manufacturing index for February late Thursday morning. This index measures manufacturer sentiment and can have a pretty heavy impact on the financial and mortgage markets if it varies from forecasts. It is expected to show a small drop from January's 59.1. A reading above 50.0 means more surveyed manufacturers felt business improved during the month than those who felt it had worsened. A sub-50 reading is considered a recessionary sign. If we see a weaker than expected reading, the bond market could rally. But, a much higher than forecasted reading could lead to heavy selling in bonds, causing mortgage rates to rise Thursday morning. One of the reasons this data is considered so important is the fact that it is usually the first monthly report posted that covers the preceding month. It is traditionally posted the first business day of the month, allowing for a current snapshot of conditions in the manufacturing sector.
The University of Michigan's revision to their Index of Consumer Sentiment for February will close out the week's calendar late Friday morning. Current forecasts show this index slightly lower from its preliminary estimate of 99.9 that was posted two weeks ago. It 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.
Overall, look for Tuesday or Thursday to be the most active days for mortgage rates. The calmest day could be Friday. Besides the scheduled events, we also need to watch stocks as they can heavily impact bond and mortgage rate direction. If bond yields move any higher, stocks are at risk to go into selling mode. A sizable stock sell-off should help boost bond prices and lower mortgage rates. With such a busy calendar this week, it would be extremely prudent to maintain contact with your mortgage professional if still floating an interest rate.