Market Commentary

Updated on January 27, 2020 10:15:23 AM EST

December's New Home Sales report kicked off this week's calendar late this morning. It showed that sales of newly constructed homes fell 0.4% last month when analysts were expecting to see an increase. The weaker number is favorable news for bonds and mortgage rates because it is a sign that the housing sector was flat. Although, this is not the reason for this morning's bond rally. This report doesn't carry enough significance to cause this type of move in the markets.

We also have the first of this week's two potentially influential Treasury auctions taking place today. 5-year Notes are being sold today followed by 7-year Notes tomorrow. Neither sale is likely to cause a big move in mortgage rates but could lead to a slight revision if there was an overly strong or weak demand for the securities. Results will be posted at 1:00 PM ET each day, making these afternoon events.

There are six more relevant economic reports scheduled this week that may influence mortgage pricing in addition to an FOMC meeting. A couple of the reports are considered to be highly important while others are of moderate or low importance. There is something worth watching scheduled every day of the week, meaning we could see plenty of movement in rates this week.

Tomorrow has one of those highly important releases with December's Durable Goods Orders scheduled to be posted at 8:30 AM ET. It helps us measure manufacturing strength by tracking new orders at U.S. factories for products that are expected to last three or more years. These are also known as big-ticket items and include things such appliances, electronics and airplanes. The data is known to be quite volatile from month-to-month, so a large headline number isn't necessarily a concern. It is expected to show a rise in orders of 0.5%. A large drop in orders would be considered good news for bonds and mortgage rates. Even though this an important report, a slight variance likely will have little impact on Tuesday's mortgage pricing because of the large swings that are common in the data. A large decline would indicate weakness in the manufacturing sector and be good news for mortgage rates.

January's Consumer Confidence Index (CCI) will also be released tomorrow, but at 10:00 AM ET. This report is considered to be of moderate importance to the bond market and therefore can move mortgage rates if it shows any surprises. It is an indicator of consumer sentiment, which is important because waning confidence in their own financial situations usually means that consumers are less willing to make large purchases in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, market participants are very attentive to related data. Analysts are expecting to see an increase from December's reading, indicating consumer confidence was a little stronger than last month. A reading much smaller than the expected 128.0 would be ideal for the bond market and mortgage rates. A higher reading than forecasts would hint that consumers are more likely to spend in the immediate future, fueling economic growth and possibly pushing mortgage pricing higher tomorrow.

Overall, tomorrow or Thursday may end up being the most active day for mortgage rates. Normally, an FOMC meeting will make that day the most important by default. However, there is a decent chance that we will get no surprises from this report and it will be a non-factor. There is no day that stands out as the calmest day. With so much taking place this week, it would be prudent to watch the markets closely if still floating an interest rate and closing in the near future.

 ©Mortgage Commentary 2020

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of Horizon Credit Union.