Sunday, October 25th
There are six monthly and quarterly economic reports set for release this week, some of which are extremely important. In addition to the data there are also a couple of Treasury auctions and an FOMC meeting, meaning we should see a noticeable move in rates multiple days. It starts light with nothing of importance scheduled for tomorrow- the only day of the week without something listed that may affect rates.
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Bonds
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Dow
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NASDAQ
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Trailing 90 Days - National Average
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Starting this week’s economic calendar will be the release of September’s Durable Goods Orders report at 8:30 AM ET Tuesday. This report gives us an important indication of manufacturing sector strength by tracking orders at U.S. factories for big-ticket items. These are products that are expected to last three or more years, such as airplanes, appliances and electronics. Analysts are predicting a 1.0% increase in new orders. This data is known to be quite volatile from month to month and is difficult to forecast. Therefore, a small variance in orders either way will likely have little effect on bond trading or mortgage pricing. Favorable news would be a large decline in new orders that points to manufacturing weakness.
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Next up is October's Consumer Confidence Index (CCI) from the New York-based Conference Board at 10:00 AM ET Tuesday. The index helps us gauge consumer willingness to spend by tracking consumer confidence in their own financial and employment situations. It is expected to show a decline from last month's 81.9 reading, meaning surveyed consumers felt better about their own financial and employment situations last month than this month. That would be good news for the bond market because waning confidence usually translates to weaker consumer spending levels, which makes up over two-thirds of our economy. Current forecasts show a reading of 81.0. The lower the reading, the better the news for mortgage rates.
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September's New Home Sales report is Tuesday’s third release, but is the least influential of the week’s batch of data. It will give us insight into the new home portion of the housing sector compared to the home resales that was posted earlier this month. Forecasts show a decline in sales of newly constructed homes after the National Association of Realtors announced an increase in home resales earlier this month. Theoretically, a large decline in sales would be good news for rates since weaker housing makes broader economic growth more difficult. However, this report covers such a small portion of all some sales that we are not expecting the report to have an impact on Tuesday’s rates.
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Tuesday also has the first of this week’s two semi-relevant Treasury auctions. 5-year Notes will be sold that day followed by 7-year Notes on Thursday. If these sales are met with a strong demand from investors, bond prices may rise enough during afternoon trading to slightly improve mortgage pricing. A lackluster interest from investors may create a bit of pressure in the broader bond market that leads to a minor upward revision to mortgage rates. It is worth noting that this week’s auctions are for shorter-term securities and mortgage rates are based on long-term debt. Therefore, any impact this week’s sales may have on rates should be minimal.
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Wednesday doesn’t have any economic data that we need to be worried about, but it does have the second-to-last FOMC meeting of the year. There is much debate about what Fed Chairman Warsh and friends may do at this meeting. The consensus is that they will keep key short-term interest rates unchanged this week to allow more time for their previous quarter-point hike to have an impact on inflation. Still, there is a chance that we could get a surprise bump with oil prices and other economic factors keeping inflation much higher than the Fed’s preferred 2.0% annual pace. The meeting begins Tuesday and will adjourn Wednesday at 2:00 PM ET. Their written statement will also be released at 2:00 PM ET while the press conference with Chairman Warsh will start at 2:30 PM ET. This meeting does not include revised economic projections or their dot plot of key rate predictions.
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The week's major economic reports are both set for release at 8:30 AM ET Thursday morning. First will be the preliminary reading of the 3rd Quarter Gross Domestic Product (GDP) that is considered to be the benchmark gauge of economic growth because it is the total of all goods and services produced in the U.S. Accordingly, it is likely to have a big impact on the financial and mortgage markets. Current forecasts show the economy expanded at a 3.0% annual pace during the July through September months after it grew at a 2.2% pace during the second quarter. If we get a noticeably smaller rate of growth, the bond market should rally and mortgage rates will fall. However, a much stronger economy makes bonds less appealing to investors and should lead to an upward move in rates.
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September's Personal Income and Outlays report is Thursday’s other key release. Analysts are expecting to see a 0.3% rise in both income and spending. Good news for bonds would be smaller increases in both readings. However, what will draw much more attention than those numbers are the PCE readings. The Personal Consumption Expenditures indexes are the Fed's go-to inflation readings when determining monetary policy at their FOMC meetings. September's overall PCE reading is expected to have risen 0.5% while the more important core data that excludes volatile food and energy costs rose 0.3%. We can expect to see the inflation readings have a much stronger influence on the markets than the income and spending numbers. Mortgage rates should move noticeably lower if the report reveals inflation was not as strong as thought.
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Friday morning will bring us the release of the 3rd Quarter Employment Cost Index (ECI). This data tracks employer costs for salaries and benefits, giving us an indication of wage inflation pressures. Rapidly rising costs raise wage inflation concerns and hurts bond prices. It is expected to show an increase in costs of 0.7%. A smaller than expected increase would be good news for mortgage rates.
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Overall, the FOMC meeting makes Wednesday the most important day of the week for rates by default, but Thursday’s data can cause a bigger change in rates if the Fed gives us no surprises Wednesday afternoon. Unless something unexpected happens, we should see the most noticeable changes in rates one of those days. Friday is a good candidate for calmest day. We also have to be on alert for stock influence again this week as concerns grow about technology stocks. Generally speaking, heavy stock selling tends to drive funds into funds as we saw last week. With so many factors to drive trading this week, it is highly recommended to keep an eye on the markets if still floating an interest rate and closing in the near future because we are expecting a very active week for rates.
If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.