This holiday-shortened week brings us the release of six relevant economic reports for the markets to digest along with two potentially influential Treasury auctions. All of the week's mortgage-related events are being posted over just two days, partly due to the Thanksgiving holiday. Therefore, the middle days of the week should be the most interesting for mortgage shoppers.
November's Consumer Confidence Index (CCI) will start this week's activities late Tuesday morning. This Conference Board index helps us track consumer willingness to spend. If a consumer's confidence in their own financial and employment situation is strong, analysts believe that they are more apt to make larger purchases in the near future, fueling economic growth. This is important because consumer spending makes up over two-thirds of the U.S. economy and strength in it makes long-term securities such as mortgage-related bonds less attractive to investors. Analysts are expecting to see an increase in confidence from last month's level, meaning surveyed consumers were a little more optimistic about their own financial situations this month than they were last month. A weaker reading than the 126.9 that is expected would be good news for mortgage rates, while a stronger reading could push mortgage rates higher Tuesday.
October's New Home Sales report is next, also late Tuesday morning. It will give us an indication of housing sector strength but is the week's least important release. Analysts are expecting to see an increase between September and October's sales of newly constructed homes. It will take a large change in sales for this data to influence mortgage rates, partly because this report tracks such a small portion of all home sales. Last week's Existing Home Sales report covers most of the home sales in the U.S.
In addition to this week's economic reports, there are two relatively important Treasury auctions that may also influence bond trading enough to affect mortgage rates. There will be an auction of 5-year Treasury Notes Tuesday and 7-year Notes on Wednesday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we could see broader selling in the bond market that leads to upward revisions in mortgage rates. However, strong investor demand usually makes bonds more attractive to investors and brings funds into the bond market. The buying of bonds that follows often translates into lower mortgage rates. Results of the sales will be posted at 1:00 PM ET Tuesday and 11:30 AM Et Wednesday. Any reaction to the sales will come shortly after those results are posted.
Wednesday has several events that we will be watching, starting with October's Durable Goods Orders at 8:30 AM ET. This data helps us measure manufacturing strength by tracking orders for big-ticket items or products that are expected to last three or more years, such as airplanes, appliances and electronics. It is known to be quite volatile from month-to-month, so sizable swings from the previous month are fairly normal. It is expected to show a 0.9% decline in new orders. A larger than expected drop would be considered good news for the bond market and mortgage rates as it would indicate the manufacturing sector was weakening. We need to see a sizable variance from forecasts though for the markets to have a noticeable reaction due to the usual volatility in the data. It is worth mentioning that this is the most important report of the week and one of the more important we get each month.
Also early morning will be the release of the first revision to the 3rd Quarter Gross Domestic Product (GDP). It is expected to show no change from last month's preliminary estimate of a 1.9% annual rate of growth. The GDP measures the total of all goods and services produced in the U.S. and is considered to be the benchmark measurement of economic growth. Good news for rates would be a downward revision, meaning the economy was not as strong as previously thought. However, this data is somewhat aged at this point covering the July, August and September months. That means it will take a noticeable revision to cause a move in rates.
October's Personal Income and Outlays data is also set for release early Wednesday morning. This data measures consumers' ability to spend and their current spending habits. It also includes an inflation reading (PCE index) that the Fed relies on when making their monetary policy decisions. Because consumer spending is such a large part of the U.S. economy and controlling inflation is a key part of the Fed’s responsibilities, data such as this can influence the markets and mortgage rates. The bond market tends to thrive in weaker economic conditions, so good news for mortgage rates would be softer than expected readings. Current forecasts are calling for a 0.3% increase in both the income and spending readings.
The final event of the day will be the Federal Reserve's Beige Book at 2:00 PM ET Wednesday. This report is named simply after the color of its cover and details economic conditions throughout the U.S. by Fed region. Since the Fed uses this info during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any surprises. Of particular interest is information regarding inflation, unemployment or future hiring. If there is a reaction to the report, it will come during mid-afternoon trading.
The financial markets will be closed Thursday in observance of the Thanksgiving Day holiday. There will not be an early close Wednesday ahead of the holiday, but the stock and bond markets will close early Friday and will reopen next Monday morning. I suspect that Friday will be a very light day in bond trading as many market participants will be home for the long weekend. The same can be said to some degree Wednesday afternoon also.
Overall, I am expecting Wednesday to be the busiest day for the bond market and mortgage rates with four releases scheduled, including the most important of the week. The calmest day will most likely be Friday as many traders will be home for the long weekend rather than in the office working.