This week brings us the release of six monthly or quarterly economic reports in addition to a couple of Treasury auctions that have the potential to influence rates. None of the events are considered to be extremely important or possible market movers. However, several of the reports do carry enough significance to cause a noticeable change in rates. The week starts off light with nothing of importance scheduled for tomorrow, the only day of the week that doesn’t have something to watch.
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 131.6 reading in January to 132.0 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.
Wednesday has a morning and afternoon event to watch. The first is January's New Home Sales report at 10:00 AM ET. 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 because it covers such a small part of all home sales. Wednesday'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.
In addition to this week's few 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 Notes Wednesday and 7-year Notes on Thursday. 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 to mortgage rates. However, strong sales usually make bonds attractive to investors and bring more 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 auction day, so look for any reaction to come during afternoon hours.
January's Durable Goods Orders data early Thursday morning will give us an important measurement of manufacturing sector strength by tracking orders at U.S. factories for items expected to last three or more years. Products such as electronics, refrigerators, airplanes and autos are examples of these big-ticket items. Analysts are expecting to see a 1.0% decline in new orders, hinting at manufacturing sector growth. It is worth noting that this data is known to be quite volatile from month to month, so large swings are common and won’t have as much of an impact as it would in many other reports.
Also early Thursday morning will be the first revision to the 4th Quarter Gross Domestic Product (GDP) reading. The GDP is considered to be the benchmark indicator of economic growth that comes in a preliminary version followed by two revisions one month apart. This is the second version of last quarter and is expected to be unchanged from the initial 2.1% annual rate of growth. Because bonds are more attractive to investors during times of economic weakness, the bond market and mortgage rates should improve if there is a noticeable downward revision.
Friday has the final two relevant economic reports, starting with January’s Personal Income and Outlays report at 8:30 AM ET. This data gives us an indication of consumer ability to spend and current spending habits. Current forecasts call for an increase in income of 0.4% while spending is expected to risen 0.3%. Lower levels of income mean 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. It also contains a key inflation reading that the Fed relies on during their FOMC meetings. Therefore, the weaker the readings, the better the news it would be for mortgage rates.
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 nearly unchanged from its preliminary estimate of 100.9 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, Thursday or Friday are the best candidates for most important day of the week for rates, but we may also see movement in rates tomorrow despite not having any economic data scheduled. This is due to weekend news about the coronavirus spreading and concerns how it will impact the global economy. At this time, it looks as if stocks are going to open tomorrow with steep losses. Generally speaking, what is bad news for stocks is good news for bonds and mortgage rates. If they do sell-off again, we should see a shift of funds into bonds that leads to lower mortgage rates.