Market Commentary for the Week of August 25th

This week has six economic reports scheduled for release that are relevant to mortgage rates in addition to two Treasury auctions that can potentially affect rates. There is data being posted four of the five days with Wednesday the only day with nothing scheduled, but none of the reports are expected to be a market mover. Still, most of the week’s releases carry enough significance to affect mortgage rates if their results vary from forecasts.

July’s New Home Sales data is the first report of the week, coming Monday at 10:00 AM ET. This report will give us another indication of housing sector strength and mortgage credit demand, but only tracks a small portion of all home sales. The majority of U.S. home sales were covered in last week’s Existing Home Sales report. It usually doesn’t have much of an impact on bond prices or mortgage rates unless it varies greatly from forecasts. Current forecasts are calling for an increase in sales of newly constructed homes from June to July. A larger increase in sales would hint at housing sector strength, making the data negative for mortgage rates.

The Commerce Department will post July’s Durable Goods Orders early Tuesday morning, giving us an important measure of manufacturing sector strength. This report tracks orders at U.S. factories for big-ticket items, or products that are expected to last three or more years such as appliances, electronics and airplanes. Analysts are expecting to see an increase of approximately 6% in new orders, indicating manufacturing sector strength. This data is known to be quite volatile from month to month, so an increase of this size doesn’t raise too much attention. However, a decent sized decline is good news for the bond market and mortgage rates as it means manufacturing activity is likely softening. A secondary reading the excludes more volatile transportation-related orders is expected to rise 0.5%. The softer the reading, the better the news it is for the bond and mortgage markets.

Tuesday also has August’s Consumer Confidence Index (CCI) form the Conference Board at 10:00 AM ET. This index measures consumer sentiment about their personal financial situations, which helps us measure consumer willingness to spend. If consumers are feeling more confident in their own finances, they are more apt to make a large purchase in the near future, fueling economic growth. A decline in confidence would indicate that surveyed consumers probably will not be buying something big in the immediate future. That would be a sign of economic weakness and should drive bond prices higher, helping to lower mortgage rates Tuesday. It is expected to show a reading of 88.3, which would be a decline from July’s 90.9. The lower the reading, the better the news it is for bonds and mortgage rates.

Thursday’s only monthly or quarterly data is the first revision to the 2nd Quarter Gross Domestic Product (GDP) at 8:30 AM ET. The GDP is the total of all goods and services produced in the U.S. and is considered to be the best measurement of economic growth or contraction. This reading is the second of three that we see each quarter. Last month’s preliminary reading revealed that the economy grew at an annual rate of 4.0%. Thursday’s revision is expected to show no change to that estimate. A downward revision should help lower mortgage rates, especially if the inflation portion of the release does not get revised higher. On the other hand, an upward revision would indicate the economy was stronger than previously thought, making it bad news for mortgage rates. There will be a final revision issued next month, but it probably will have little impact on mortgage rates since traders will be more interested in the current quarter’s activity.

Friday is a multi-release day with two pieces of economic data set to be posted. July’s Personal Income and Outlays report is the first at 8:30 AM ET. This data will give us a measure of consumer ability to spend and current spending habits. Rising income means consumers have more money to spend. It is expected to show an increase of 0.3% in income and a 0.1% increase in spending. Since consumer spending makes up over two-thirds of the U.S. economy, weaker than expected numbers would be considered good news for the bond market and mortgage pricing.

The second report of the morning will be the University of Michigan’s revised Index of Consumer Sentiment for August. This sentiment index helps us track consumer willingness to spend similarly to Tuesday’s CCI. It is expected to show a reading of 80.0, up from August’s preliminary reading of 79.2. If it revises lower, consumers were less confident about their personal financial situations than previously thought. This would be good news for the bond market and mortgage rates because waning confidence usually means that consumers are less likely to make large purchases in the near future. As with the CCI index, the lower the reading the better the news for mortgage shoppers.

Also worth mentioning are a couple of Treasury auctions that may affect bond trading and mortgage rates this week. There are auctions several days, but the two relevant ones are Wednesday’s 5-year Note and Thursday’s 7-year Note sales. Results of the auctions will be posted at 1:00 PM ET each day. If investor interest is strong in the auctions, it is possible that the broader bond market will rally and mortgage rates could move lower during afternoon trading. However, a lackluster demand could lead to bond selling and higher mortgage rates Wednesday and Thursday afternoons.

Overall, I am expecting to see the most movement in rates Tuesday, but Thursday’s GDP report could be the week’s most important report if it shows a significant revision. Wednesday looks to be the lightest day with nothing of importance scheduled except the moderately important Treasury auction. Even though none of this week’s economic data is considered to be a market mover, we still should see plenty of activity and movement in rates. Therefore, please proceed cautiously if still floating an interest rate and closing in the near future.