This week has plenty scheduled that is likely to influence mortgage rates. There is at least one item scheduled each day of the week with several days having multiple events. We have six monthly and quarterly economic releases to be concerned with, in addition to a couple of Treasury auctions, another FOMC meeting and more corporate earnings announcements. With so much scheduled, and some of it highly important to the markets, it is safe to assume that it will be an active week for rates.
The Commerce Department will start this week’s activities at 8:30 AM ET tomorrow when they post June's Durable Goods Orders. Current forecasts are calling for an increase in new orders of 6.5% from May to June. This data gives us an indication of manufacturing sector strength by tracking orders at U.S. factories for big-ticket items, or products that are expected to last three or more years. A much stronger than expected rise may lead to higher mortgage rates tomorrow morning because it would point towards more strength in the sector than many had thought. It should be noted though that this data is known to be extremely volatile from month to month, so a minor difference between forecasts and the actual reading may not move the markets or mortgage rates like other reports would.
There are also two potentially relevant Treasury auctions this week, beginning with tomorrow’s 5-year Note sale followed by Tuesday’s 7-year Note auction. 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 bonds that leads to upward revisions to mortgage rates. On the other hand, strong sales usually make bonds more attractive to investors, bringing more funds into the bond market. The buying of bonds during this process translates into lower yields and mortgage rates. 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 tomorrow and Tuesday.
Late Tuesday morning, the Conference Board will release their Consumer Confidence Index (CCI) for July. This index measures consumer sentiment, giving us an idea of consumer willingness to spend. If consumers are more confident in their own financial and employment situations, they are more apt to make large purchases in the near future. This is important because consumer spending makes up such a large portion of our economy. If the CCI reading is weaker than expected, meaning consumers were less confident than analysts thought and likely will delay making a large personal purchase, we may see bond prices rise and mortgage rates drop Tuesday morning. Current forecasts are calling for a reading of 95.2, which would be a decline from June's 98.1. The lower the reading, the better the news it is for mortgage rates.
There is no relevant economic data set for Wednesday, but the afternoon has the adjournment of the FOMC meeting that begins Tuesday. All meetings are now followed by a press conference with Fed Chairman Powell, but this meeting does not include revised economic projections. There is virtually no possibility of the Fed changing key short-term interest rates this week. What the markets will be looking for is an indication of what Chairman Powell and friends are considering in an effort to boost the economy. Their previous actions (bond buying, credit facilities, etc) were intended to keep the financial markets liquid. Many analysts now believe the Fed has to act to actually fuel economic growth, which appears to be slower than many had predicted by this time. How the financial and mortgage markets react will depend on what the Fed decides to do, or not do. The meeting adjournment and statement release will occur at 2:00 PM ET while the press conference will start at 2:30 PM ET.
Thursday brings a major release with the preliminary reading of the 2nd Quarter Gross Domestic Product (GDP) at 8:30 AM ET. This index is considered to be the benchmark indicator of economic growth or weakness. It is the total of all goods and services that are produced in the U.S. and usually has a great deal of influence on the financial markets. This reading is arguably the single most important report we get regularly. Current forecasts are estimating that the economy contracted at a record-breaking annual rate of 35% during the pandemic affected April through June months. A smaller decline in the GDP would technically be bad news for rates, but a decline anywhere close to forecasts is still ugly.
June's Personal Income and Outlays data is the first of Friday morning’s three relevant reports. This one helps us measure consumer ability to spend and current spending habits. Forecasts are calling for a decline of 0.9% in income and a 5.1% rise in spending. This report also includes the Fed’s preferred inflation gauge (PCE Index), which is expected to show an increase from May. Stronger readings indicate economic growth, but these numbers are still being skewed by the shutdown and states reopening. Therefore, we likely will not see rates move noticeably because of the headline numbers.
Also early Friday will be the 2nd Quarter Employment Cost Index (ECI) that tracks employer costs for wages and benefits. This release will give us a measurement of wage-inflation that makes long-term securities, such as mortgage bonds, less attractive to investors. If it shows a large increase, we may see inflation concerns rise as employers will need to pass those increases into the pricing of their products and services. A smaller than expected increase would be good news for the bond market and mortgage pricing. Current forecasts are showing a rise of 0.6%.
July's revised University of Michigan Index of Consumer Sentiment will be posted late Friday morning. This is another consumer optimism reading about their own financial situations. This data is considered relevant because rising consumer confidence usually translates into higher levels of spending that adds fuel to economic growth that makes bonds less appealing to investors. Friday's release is an update to the preliminary reading we saw two weeks ago, so unless we see a drastic revision to the preliminary estimate of 73.2 the markets will probably shrug off this data.
Overall, the most active day for mortgage rates will likely be Wednesday, but Thursday also has the potential to be it due to the importance of the GDP reading and weekly unemployment figures. The calmest day may be Tuesday, although we should still see movement in rates that day also. Throw in a surprise earnings announcement or two with this week’s calendar and we have the makings of a possibly volatile week for the markets and mortgage rates. If still floating an interest rate and closing in the near future, it would be prudent to pay attention to market movement and some of the key events that are scheduled as we may see noticeable moves in rates throughout the week.