This week is packed with economic releases and other events that may influence mortgage rates. There is little doubt that we will see plenty of movement in the financial markets and mortgage rates the next five days. It starts off relatively light with just a 5-year Treasury Note auction set for tomorrow, which will be followed by the 7-year Note sale Tuesday.
The week’s economic data will start with December’s Housing Starts at 8:30 AM ET Tuesday. This report gives us an indication of housing sector strength and mortgage credit demand by tracking new housing construction starts. It usually does not affect rates unless the results vary greatly from forecasts. Current forecasts are calling for little change from November’s number of groundbreakings. A weak housing sector makes broader economic growth less likely in the near future, which makes bonds more attractive to investors. Therefore, the smaller the number of starts, the better the news it is for mortgage rates.
February's Consumer Confidence Index (CCI) will also 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 120.2 reading in January to 125.0 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.
Fed Chairman Jerome Powell will deliver the Fed's semi-annual testimony on the status of the economy late Tuesday and Wednesday mornings. He will be speaking to the Senate Banking Committee Tuesday morning and the House Finance Committee Wednesday. 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 markets 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.
December's Factory Orders data is set to be released Wednesday morning. This report was previously delayed during the government shutdown. It is similar to last week's Durable Goods Orders release in giving us a measurement of manufacturing sector strength, but this data includes new orders for both durable and non-durable goods. It is not one of the more important reports we get each month, however, it can influence mortgage pricing if it varies greatly from forecasts. Analysts are expecting a 1.0% rise in new orders, indicating a strengthening manufacturing sector. The bond market would like to see a large decline, meaning that manufacturing activity was weaker than many had thought.
The combined first and second releases of the 4th Quarter GDP reading will be releases at 8:30 AM ET Thursday 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. The initial reading was supposed to be posted last month but the shutdown nixed that. Forecasts currently call for an annual rate of growth of 2.3%, down from the 3rd quarter’s 3.4%. 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 smaller reading would be good news for bonds and could lead to improvements in mortgage pricing Thursday.
Friday has three relevant economic reports, including one highly important release. A modified version of the Personal Income and Outlays report is scheduled for release at 8:30 AM ET Friday morning. This data gives us an indication of consumer ability to spend and current spending habits. This release will include December’s income and spending readings along with January’s income reading. Current forecasts call for an increase in income of 0.3% both months while December’s spending is expected to have fallen 0.2%. Lower levels of income means consumers have less money to spend. And weaker levels of consumer spending help 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 big news of the day will be the Institute for Supply Management’s (ISM) manufacturing index for February at 10:00 AM ET. 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 56.6. 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 Friday 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. Forecasts show this index slightly higher from its preliminary estimate of 95.5 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, Tuesday or Friday are likely to be the most active day for mortgage rates while there is no clear candidate for calmest day. There are events scheduled every day this week that have the potential to move rates. Even tomorrow, which has no data and a minor Treasury auction scheduled may be a bit active as a result of weekend news that the U.S. will delay higher tariffs on Chinese goods that were supposed to go in effect this week. With so much going on, it would be prudent to maintain contact with your mortgage professional this week if still floating an interest rate.