This week has eight economic reports scheduled to be posted with three of them considered to be highly important. However, one of those extremely important releases and another moderately important report likely will not be posted due to the partial government shutdown. Even though the shutdown has ended, the government agencies need time to compile the data and produce the reports. Still, that leaves us with six releases for the markets to digest, including two key reports. In addition to this data, we have an FOMC meeting, a couple of Treasury auctions and some high-profile corporate earnings releases coming this week.
The first events of the week will be two Treasury auctions that have the potential to slightly influence mortgage rates. 5-year Notes will be sold tomorrow, followed by 7-year Notes Tuesday. Neither sale is likely to cause a big move in rates, but with little else tomorrow we could see the broader bond market react to the auction enough to cause a small move in mortgage pricing. A strong demand for the securities could help lower rates during afternoon trading. Results will be posted at 1:00 PM ET, so if there is a reaction it will come during early afternoon trading.
January's Consumer Confidence Index (CCI) is the first economic report of the week, coming at 10:00 AM ET Tuesday. This report is considered to be of moderate importance to the bond market and therefore can move mortgage rates if it shows any big surprises. It is an indicator of consumer sentiment, which is important because waning confidence in their own financial situations usually means that consumers are less willing to make large purchases in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, market participants are very attentive to related data. Analysts are expecting to see a decline from December's reading, indicating consumer confidence was weaker this month than last month. A reading much smaller than the expected 126.1 would be ideal for the bond market and mortgage rates. A higher reading would hint that consumers are more likely to spend in the immediate future, fueling economic growth and possibly pushing mortgage pricing higher Tuesday.
Next up is Wednesday's ADP Employment report at 8:15 AM ET. This release has the potential to cause some movement in the markets if it shows much stronger or weaker numbers. It tracks changes in private-sector jobs, using the company's clients that use them for payroll processing as a base. While it does draw attention, it is my opinion that it is overrated and also is not a true reflection of the broader employment picture. Also, it usually is not accurate in predicting results of the monthly government report that follows a couple days later. Still, because we see a reaction to its results, it is included in this week's calendar. Analysts are expecting to see 170,000 new jobs. Good news would be a much smaller number of jobs.
This year's first FOMC meeting will begin Tuesday and adjourn Wednesday at 2:00 PM ET. The general consensus is that Fed Chair Powell and friends will not follow up last month's bump to key short-term interest rates with another move this week. It is more likely that the post-meeting statement will be the cause of afternoon volatility. It is worth noting that every FOMC meeting will now be followed by a press conference with Chairman Powell. Traders will be looking for hints as to when the next rate hike is likely to come and how many they will make this year. This is an afternoon event that could have a big impact on the financial and mortgage markets.
The 4th Quarter Employment Cost Index (ECI) is set for release at 8:30 AM ET Thursday. This index measures employer costs for employee wages and benefits, giving us an indication of the threat of wage inflation. If wages are rising, consumers have more money to spend and businesses usually need to charge more for their products and services. The report is considered moderately important and usually has more of an impact on the bond market than the stock markets. Current forecasts are showing an increase of 0.8%. A lower than expected reading would be favorable to bonds and mortgage rates Thursday, but unless we see a large variance from forecasts, I am not expecting this report to have much of an influence on rates.
Friday has the remaining three economic releases, beginning with the almighty monthly Employment report at 8:30 AM ET. It was this release last month that put an end to the big slide in bond yields and mortgage rates by posting strong payroll numbers. If we get another strong report, bond yields and mortgage rates will most likely spike higher again. It is expected to show that the unemployment rate held at 3.9% last month while 160,000 new jobs were added to the economy. Average earnings are expected to rise 0.2%. Ideal for mortgage rates would be an increase in unemployment, a smaller job number and no change or decline in earnings. This is the single most important monthly report, meaning we can expect it to generate plenty of volatility in the markets.
The second report of the day is also a major release. At 10:00 AM ET the Institute of Supply Management (ISM) will release their manufacturing index for January. This index tracks manufacturer sentiment by rating surveyed trade executives' opinions of business conditions. It is usually the first economic data released each month covering the preceding month and is one of the very important reports we get monthly. Current forecasts are calling for a reading in the neighborhood of 53.6, which would be a decline from December's reading of 54.1. The lower the reading, the better the news for the bond market and mortgage rates because weaker sentiment indicates a slowing manufacturing sector.
Closing out the week’s economic calendar will be the revised reading to the University of Michigan's Index of Consumer Sentiment at 10:00 AM ET Friday. This index is another measurement of consumer confidence that is thought to indicate consumer willingness to spend. I don't see this data having much of an influence on the markets or mortgage rates because of the importance of day’s other releases. Analysts are expecting to see little change from the preliminary reading of 90.7.
Also worth noting is the peak of earnings season. We have plenty of corporate earnings releases scheduled this week, including three of the largest U.S. companies- Amazon, Apple and Microsoft. Better than expected earnings should boost stock prices, making bonds less appealing to investors. However, disappointing earnings could lead to stock selling, stronger bonds and lower mortgage rates. Each of those three companies are set for release different days, along with a large number of other companies. That means we may see heavy stock influence on bonds trading multiple days this week.
Overall, Friday is the best candidate for most active day with two highly important economic reports being released. The calmest day for rates may be tomorrow or Tuesday. Although, it will be interesting to see how the markets react to the end of the partial government shutdown, even though it may just be temporarily. With so much going on this week, it would be prudent to maintain contact with your mortgage professional if still floating an interest rate and closing in the near future.