This holiday-shortened week brings us the release of four relevant economic
reports for the markets to digest in addition to Treasury auctions that
have the potential to influence bond trading and mortgage rates. None of
the reports are considered to be key data, but all of them do carry enough
significance to affect mortgage rates if their results show any surprises.
The financial and mortgage markets will be closed tomorrow in observance of
the Memorial Day holiday and will reopen for regular trading Tuesday
morning. Accordingly, we will not be updating this report tomorrow.
The Conference Board will start the week's events by posting their Consumer
Confidence Index (CCI) at 10:00 AM Tuesday. This data measures consumer
willingness to spend. If the index rises, it indicates that consumers felt
better about their personal financial situations and therefore are more apt
to make large purchases in the near future. If confidence is sliding,
analysts think consumer spending may slow in the near future. The latter is
good news for the bond market because consumer spending makes up over
two-thirds of the U.S. economy. A decline in the index should boost bond
prices and push mortgage rates lower Tuesday morning while a larger than
expected increase would likely cause rates to move higher. It is expected
to show a reading of 72.5, up from April's 68.1 reading.
Wednesday has nothing scheduled that is expected to affect mortgage rates
except the first of this week’s two Treasury auctions that are worth
watching. The Fed will auction 5-year Notes Wednesday and 7-year Notes on
Thursday. 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 the bond market that leads to upward
revisions to mortgage rates. On the other hand, strong sales usually make
bonds more attractive to investors that brings more funds into bonds. The
buying of bonds that follows usually translates into lower 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 afternoon hours Wednesday and Thursday.
The next report will be Thursday's release of the first of two revisions to
the 1st quarter Gross Domestic Product (GDP) at 8:30 AM ET. The second
revision to this index comes next month but isn't expected to carry much importance.
The GDP is the sum of all goods and services produced in the U.S. and is
considered to be the best measurement of economic growth. Last month's
preliminary reading revealed a 2.5% increase in the annual rate of growth.
Analysts expect no change in this update. If the revision comes in much
stronger than expected, we may see the bond market react negatively and
mortgage rates move higher because it would mean the economy was stronger
than thought last quarter. On the other hand, a much weaker reading could
lead to stock selling, a bond rally and lower mortgage rates.
Friday has the remaining two pieces of data. April's Personal Income and
Outlays data is the first at 8:30 AM ET. It gives us an indication of
consumer ability to spend and current spending habits. An increase in
income means that consumers have more money available to spend. As we
pointed out above, since consumer spending makes up over two-thirds of our
economy, this data can cause movement in the financial markets and mortgage
rates. Current forecasts are showing a 0.1% increase in income and a 0.1%
rise in spending. Weaker readings would be considered good news for bonds
and mortgage rates.
The last relevant data of the week will come from the University of
Michigan, who will update their Index of Consumer Sentiment for May late
Friday morning. This type of data is watched closely because when consumers
are feeling more confident about their own financial situations, they are
more likely to make a large purchase in the near future. Rising confidence
and the higher levels of spending that usually follow are considered
negative news for bonds and mortgage rates. Friday's report is expected to
show no change from this month's preliminary reading of 83.7. A higher
reading would be considered negative for bonds and mortgage pricing.
Overall, it is difficult to label any particular day as the week’s most
important. The most important data is Tuesday’s or Friday’s releases,
assuming that Thursday’s GDP reading does not show a sizable revision. With
two relatively important reports scheduled for Friday, I am leaning towards
it as likely to be the most active, but Tuesday could also bring noticeable
changes to rates after the long holiday. The least active day will probably
be Wednesday unless the stock markets rally or show sizable losses. Please
keep in mind though, as we saw several days the past couple weeks, we don’t
have to have important data for the markets and mortgage pricing to move
considerably. Therefore, please maintain contact with your mortgage
professional if still floating an interest rate and closing in the near
future.
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... Float if my closing was taking place between
21 and 60 days... Float if my closing was taking place over 60 days from
now...
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