Monday’s bond market has opened in negative territory despite weaker than expected housing data. The soft opening in bonds is likely due to early stock gains that have the Dow up 77 points and the Nasdaq up 10 points. The bond market is currently down 5/32 (2.17%), but due to strength late Friday, we should see an improvement of approximately .125 of a discount point in this morning’s mortgage rates if comparing to Friday’s early pricing.
November’s Existing Home Sales was today’s only relevant economic report, coming at 10:00 AM ET. The National Association of Realtors reported that home resales fell 6.1% last month to their weakest level since May of this year. That was a much larger decline than analysts were expecting to see, indicating the housing sector was softer than many had thought. Therefore, we should consider the data favorable for the bond and mortgage markets.
Tomorrow has the week’s remaining five pieces of economic data set for release in addition to a potentially relevant Treasury auction. It all starts with November’s Durable Goods Orders at 8:30 AM ET that gives us an important measurement of manufacturing sector strength by tracking orders for big-ticket items. These are products that are expected to last at least three years such as appliances, airplanes and electronics. Analysts are expecting the report to show a 2.9% rise in new orders. A decline in new orders would indicate that the manufacturing sector was weaker than many had thought. This would be good news for the bond market and should help push mortgage rates lower. However, a much larger jump in orders could lead to mortgage rates moving higher early tomorrow morning. This data is known to be quite volatile from month-to-month though, so it is not unusual to see large headline numbers in this report.
Also early tomorrow morning is the final revision to the 3rd Quarter Gross Domestic Product (GDP). I don’t think this data will have an impact on mortgage rates unless it varies greatly from its expected reading. Last month’s first revision showed that the economy expanded at a 3.9% annual pace during the quarter and this month’s final revision is expected to show a 4.2% growth rate. A revision higher than that would be considered bad news for bonds. But since this data is quite aged at this point and 4th quarter numbers will be posted next month, I am not expecting this release to affect rates.
There are three reports being released during late morning trading tomorrow. The first of that group is the revised University of Michigan Index of Consumer Sentiment for December just before 10:00 AM ET. Current forecasts are calling for no change from the preliminary reading of 93.8. This is a fairly important index because rising consumer confidence indicates that consumers feel better about their own financial and employment situations, meaning they be more apt to make large purchases in the near future. A reading above forecasts would be negative for bonds and mortgage rates while a large decline would be favorable.
Next up is November’s Personal Income and Outlays data at 10:00 AM ET. It will give us an important measurement of consumer ability to spend and current spending habits. Since consumer spending makes up over two-thirds of the U.S. economy, any related data usually has a noticeable impact on the financial markets and mortgage rates. Current forecasts are calling for a 0.5% increase in income and a 0.5% increase in spending. If this report reveals weaker than expected readings, we could see the bond market improve and mortgage rates drop slightly late tomorrow morning, especially if the Durable Goods Orders report gives us favorable results also.
November’s New Home Sales data is the final economic report of the week. This report gives us another measurement of housing sector strength and mortgage credit demand. It is the sister report of today’s Existing Home Sales report, but covers a much smaller portion of the housing market than that one does. A weakening housing sector is considered good news for the bond market and mortgage rates because broader economic growth is less likely in the immediate future. Since bonds tend to thrive in weaker economic conditions, a large decline would be considered favorable for bond prices and mortgage rates. Current forecasts are calling for a slight increase in sales of newly constructed homes. Ideally, we would like to see a large drop in sales.
In addition to that batch of economic reports, we also have the 5-year Treasury auction taking place tomorrow. If the sale was met with a strong demand from investors, bond prices may rise enough to lead to a slight improvement in mortgage rates tomorrow afternoon. However, a lackluster investor interest may create bond selling and upward revisions to mortgage rates. Results will be announced at 1:00 PM ET tomorrow, so any reaction will come during early afternoon trading.