This week brings us the release of six economic reports for the markets to digest in addition to two Treasury auctions that have the potential to come into play. Unfortunately, even weaker than expected economic news may not be able to derail this downward spiral in bonds and upward spike in mortgage rates. It appears that the markets are looking forward and basing their trading on future events, not past. With the benchmark 10-year Treasury Note yield closing above 2.50% Friday, this upward move in rates may continue until it gets much closer to 3.00%. Hopefully this will change, but until we get some stability in the bond market, we should progress with extreme caution.
May’s Durable Goods Orders will kick off this week’s data early Tuesday morning, giving us an indication of manufacturing sector strength. It tracks orders at U.S. factories for big-ticket items, or products that are expected to last three or more years such as electronics and appliances. This data is known to be quite volatile from month to month and is expected to show an increase of 3.0% in new orders from April to May. A large decline would be the ideal scenario for the bond market and would hopefully lead to a decline in mortgage pricing as it would indicate manufacturing sector weakness.
Tuesday also has May’s New Home Sales report, but during late morning trading. It helps us measure housing sector strength by tracking sales of newly constructed homes. This report is similar to last week’s Existing Home Sales report, but covers a much smaller portion of sales than last week’s report did. It is expected to show a small increase in sales, but will likely not have much of an impact on mortgage rates because this data gives such a small snapshot of the housing sector. I believe it will take a large rise in sales or a sizable decline for this data to influence mortgage rates.
June’s Consumer Confidence Index (CCI) is the third report of the day. It will also be posted at 10:00 AM ET Tuesday and is important to the financial markets because it measures consumer willingness to spend. If consumers are more confident about their own financial situations, they are more apt to make large purchases in the near future. If it shows a sizable increase in confidence from last month, we can expect to see the bond market falter and mortgage rates rise slightly. Current forecasts are calling for a reading of 74.9, down from last month’s 76.2 reading. The lower the reading, the better the news it is for bonds and mortgage rates.
Wednesday’s only economic data is the final reading to the 1st Quarter Gross Domestic Product (GDP). The GDP is the sum of all products and services produced in the U.S. and is considered to be the best measurement of economic growth or contraction. However, this particular data is quite aged now (covers January through March) and will likely have little impact on the bond market or mortgage pricing unless it varies greatly from previous readings. Market participants are looking more towards next month’s release of this quarter’s initial GDP reading. Last month’s first revision showed a 2.4% rise in the GDP, which is what analysts are expecting to see again. An increase would be considered negative for rates as it means stronger economic activity.
May’s Personal Income and Outlays data is scheduled for release Thursday at 8:30 AM ET. This report gives us an indication of consumer ability to spend and current spending activity. They are important because consumer spending makes up over two-thirds of the U.S. economy. If consumer income is rising, they have more money to spend each month. Analysts are expecting to see an increase of 0.2% in income and a 0.4% rise in the spending portion of the report. Declines in both of these readings would be good news for the bond market and mortgage rates.
The University of Michigan will close out this week’s data when they update their Index of Consumer Sentiment for May late Friday morning. This index gives us a measurement of consumer willingness to spend. As with Tuesday’s CCI, if consumers are more comfortable with their own financial situations, they are more apt to make large purchases in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, any related data has the potential to affect bond trading and mortgage rates. A downward revision would be considered good news for bonds and rates, but forecasts are calling for little change from this month’s preliminary reading of 82.7.
Also worth noting is the fact that the Fed will be selling more debt this week. These sales may influence broader bond trading enough to affect mortgage rates if they show strong or weak investor demand. There are sales every day except Friday but the two most likely to affect rates are Wednesday’s 5-year Note sale and Thursday’s 7-year Note auction. If they are met with a strong demand, we could see bond prices rise during afternoon trading. This could lead to afternoon improvements to mortgage rates also. But, if the sales draw a lackluster interest from investors, mortgage rates may move higher during afternoon trading those days.
Overall, it is difficult to label one particular day as the most important of the week. None of the data on the agenda is considered to be highly important, but Tuesday has two of the more important reports of the week. It will be interesting to see if Friday’s late sell-off extends right into Monday’s trading. If it does, it could be another difficult day for mortgage shoppers. Until the dust settles and logic returns to the market, we will be taking things day by day. And if still floating an interest rate, I strongly recommend being extremely careful and maintain contact with your mortgage professional.