This week brings us the release of five monthly and quarterly economic reports for the markets to digest, two of which are considered to be highly important. There are also two potentially relevant Treasury auctions and a regularly scheduled FOMC meeting to deal with. Also worth mentioning is the fact that earnings season is in full swing, where publicly-traded companies announce their quarterly and annual earnings. Earnings generally affect stocks much more than bonds, but what is bad news for stocks is usually considered to be good news for bonds and mortgage rates.
The week’s activities start tomorrow afternoon with the first of two relatively important Treasury auctions that may influence bond trading enough to affect mortgage rates. There will be an auction of 5-year Treasury Notes tomorrow and 7-year Notes on Tuesday. Neither of these sales will directly impact mortgage pricing, but they can influence general bond market sentiment. If the sales go poorly, we may see broader selling in the bond market that leads to upward revisions in mortgage rates. On the other hand, strong sales usually make government securities more attractive to investors and bring more funds into bonds. Results of the sales will be posted at 1:00 PM ET each auction day, so look for any reaction to come during early afternoon hours.
April's Consumer Confidence Index (CCI) will be posted at 10:00 AM ET Tuesday. This index is considered to be an indicator of future spending by consumers. The Conference Board surveys 5,000 consumers from across the country about their personal financial situations. If sentiment is strong or rising, it is believed that consumers are more apt to make large purchases in the near future. However, if they are concerned about issues such as job security, savings or a pandemic, they will probably delay making large purchases. The latter is better for the bond market and mortgage rates because the expected slowdown in spending would keep inflation and economic growth to a minimum. It is expected to show a large decline from March’s 120.0 reading, reflective of the concern consumers have during the coronavirus shutdown.
The big economic news of the week will come at 8:30 AM ET Wednesday when the preliminary version of the 1st Quarter Gross Domestic Product (GDP) will be released. There is a strong argument to be made that this is the single most important report that we see on a regular basis. The GDP is the sum of all products and services produced in the U.S. and is considered to be the best measure of economic growth or contraction. Market participants are expecting it to show that the economy contracted at an annual rate of 4.0% during the first three months of this year because of the pandemic. A larger decline in activity would be considered good news for mortgage rates.
This week's FOMC meeting will begin Tuesday and adjourn Wednesday afternoon. There isn’t much the Fed can do with key short-term interest rates as they are practically at 0% now. What the markets will be looking for in the post-meeting statement and press conference with Chairman Powell is any indication of what they are planning to do to support the coronavirus-stricken economy if it doesn’t rebound enough with the current stimulus program. The meeting will adjourn at 2:00 PM ET while the press conference will begin at 2:30 PM.
Personal Income and Outlays data for March will be posted at 8:30 AM ET Thursday. It helps us measure consumer ability to spend and current spending habits. This information is important to the mortgage market due to the influence that consumer spending-related data has on the financial markets. If a consumer's income is rising, they have the ability to make additional purchases in the near future, fueling economic growth. This raises inflation concerns and has a negative impact on the bond market and mortgage rates. However, this month’s release is expected to show declines in both income and spending due to the massive layoffs and quarantine. This report also gives us the Fed’s preferred inflation reading (PCE index), although, the markets aren’t concerned about inflation currently.
Also early Thursday morning will be the release of the 1st Quarter Employment Cost Index (ECI). This index tracks employer costs for wages and benefits, giving us a measurement of wage-inflation. A large increase in costs means employers will need to pass those increases into the pricing of their products and services. That would be bad news for bonds and mortgage rates. A smaller increase than the 0.6% rise that forecasts are calling for would be good news.
The final economic release of the week will be the Institute for Supply Management's (ISM) manufacturing index for April Friday morning at 10:00 AM ET. This is usually the first important economic report released each month and gives us an indication of manufacturer sentiment. A reading below 50 means that more surveyed trade executives felt business worsened during the month than those who felt it had improved. Analysts are expecting to see a reading of 39.0 down from March's 49.1. Bond traders would prefer to see a larger decline from March's level, which would signal the manufacturing sector was hit harder from the pandemic than many had thought. The weaker the reading, the better the news it is for mortgage rates.
Overall, Wednesday is the key day of the week due to the GDP release and FOMC meeting. We also may see Friday be an active day for the markets with the ISM index set for release. No day stands out as a good candidate for calmest day, but tomorrow does not have much scheduled that we need to be concerned with. Look for plenty of movement in the financial markets and possibly mortgage rates over the next five days. Therefore, please proceed cautiously if still floating an interest rate and closing in the near future.