This week brings us the release of six monthly and quarterly economic reports to watch in addition to a couple of Treasury auctions. The main focus of the week though will be the Federal Reserve and their mid-week events. Most of this week’s data is considered to be moderately importantly, but there is one report more important than the others. Tomorrow is the only day with nothing of relevance scheduled.
September's Consumer Confidence Index (CCI) is next, also coming late Tuesday morning. This Conference Board index will be posted at 10:00 AM ET and gives us a measurement of consumer willingness to spend. It is expected to show a decline in confidence from last month's reading, indicating that consumers were less optimistic about their own financial situations than last month. This means they are less likely to make a large purchase in the near future. That is favorable news for the bond market and mortgage rates because consumer spending fuels economic growth. Analysts are calling for a reading of approximately 131.0, down from August's 133.4 reading. The smaller the reading, the better the news for the bond market and mortgage rates.
August's New Home Sales will start Wednesday’s activities at 10:00 AM ET. The Commerce Department is expected to say that sales of newly constructed homes rose last month, indicating the new home portion of the housing sector strengthened a little. This report will likely not have a noticeable impact on mortgage rates unless it differs greatly from forecasts. It is the week's least important report in terms of potential impact on mortgage rates, partly because it covers only the small portion of all homes sales that last week's Existing Home Sales report did not.
The big events of the week will come from the Fed Wednesday afternoon. They start with the FOMC meeting that is widely expected to yield a quarter-point increase to key short-term interest rates. It will adjourn at 2:00 PM ET. What will be of interest is verbiage in the post-meeting statement that may hint when the Fed will make their next move. There is a consensus that they will make another move in December’s meeting, their fourth of the year.
Also at 2:00 PM ET Wednesday, the Fed will release their revised economic projections for the U.S. The markets are interested in whether Chairman Powell and friends think economic conditions will be stronger or weaker in the coming months and years than previously thought. Key readings the markets will be looking for are the unemployment rate, inflation and overall GDP growth. Downward revisions by the Fed will be good news for bonds and mortgage pricing because it would mean another bump to key short-term interest rates before the end of the year may not be a sure thing after all. On the other hand, upward revisions that indicate the economy is likely to support a Fed rate hike could cause bond selling and an increase to mortgage rates.
The adjournment, post-meeting statement and economic projections will be followed by a press conference with Chairman Powell at 2:30 PM ET. All Fed meetings are highly important, but this one is particularly significant for the financial and mortgage markets due to the uncertainty of when the Fed will make another monetary policy move and their expectations for next year. Analysts and market traders will be watching his words carefully for any indication on what the Fed’s plans are. Any question or answer at the press conference can impact the markets, so there is a decent chance of seeing quite a bit of volatility Wednesday afternoon.
August's Durable Goods Orders will be posted at 8:30 AM ET Thursday, which is the week's most important report. It gives us an indication of manufacturing sector strength by tracking orders for big-ticket items at U.S. factories. Big-ticket products are items that are expected to last three or more years such as electronics and appliances. Analysts are expecting to see a 1.8% increase in new orders, indicating growth in the manufacturing sector. A decline should help boost bond prices and cause mortgage rates to drop Thursday because signs of economic weakness make longer-term securities more appealing to investors. However, a larger increase in new orders would indicate a stronger than expected manufacturing sector that will likely help push mortgage rates higher. It is worth noting that this data is known to be quite volatile from month-to-month, so a slight or moderate variance may not affect mortgage pricing.
Thursday morning also has the second revision to the 2nd Quarter Gross Domestic Product (GDP). Since this data is aged now and the preliminary reading of the 3rd Quarter GDP will be released next month, I don't see this revision having much of an impact on the financial markets or mortgage pricing. The GDP is important because it is the total sum of all goods and services produced within the U.S. and is considered the best measurement of economic activity. It is expected to show that the economy grew at an annual rate of 4.3%, up slightly from last month's 4.2% estimate. The lower the number, the better the news it is for mortgage rates. But, unless there is a significant change in this reading, it likely will not influence mortgage rates.
Friday closes the week with two pieces of data that we will be watching. The first is August's Personal Income and Outlays at 8:30 AM ET. It gives us an indication of consumer ability to spend and current spending habits. This is relevant to the markets because consumer spending makes up over two-thirds of the U.S. economy. Rising income generally indicates that consumers have more money to spend, making economic growth more of a possibility. That is negative news for mortgage rates because bonds tend to thrive in weaker economic conditions. It is expected to show an increase of 0.4% in income and a 0.3% rise in spending. If we see weaker than expected readings, the bond market should react positively, leading to lower mortgage rates Friday.
The second report of the day is the University of Michigan's revised Index of Consumer Sentiment for September. The preliminary reading that was released earlier this month showed a 100.8 reading. Analysts are expecting to see a slight downward revision, meaning consumer confidence was a bit softer than previously thought. Waning confidence is good news for bonds because consumers that are concerned about their own financial and employment situations are less likely to make a large purchase in the near future, limiting economic growth. Therefore, a lower than expected reading would be favorable news for bonds and should help improve mortgage rates.
The Treasury will sell 5-year Notes Tuesday and 7-year Notes Thursday. They will tell us if there is an appetite in the markets for medium-term securities. If investor demand in these sales is strong, particularly from international buyers, the broader bond market should move higher, pushing mortgage rates lower. But a lackluster interest from investors could lead to bond selling and higher mortgage pricing. The results of the sales will be announced at 1:00 PM ET each day, so any reaction will come during afternoon trading Tuesday and/or Thursday.
Overall, Wednesday is the most important day of the week, particularly the afternoon hours. Thursday is worth consideration also. Tomorrow is the best candidate for calmest day for mortgage rates, but we may see movement then also. I believe we are going to see a fair amount of volatility in the markets and mortgage pricing this week. Therefore, please proceed carefully if still floating an interest rate and closing in the near future.