Tuesday, November 24, 2020

Market Commentary

Updated on November 24, 2020 10:09:26 AM EST

Yesterday’s 5-year Treasury Note auction did not go as well as hoped. The benchmarks showed a below average level of interest in the securities compared to recent sales of the same term. Fortunately, the results did not have an impact on mortgage rates, but it does prevent us from being optimistic about today’s 7-year Note auction. Another lackluster sale could pressure bonds this afternoon and possibly lead to a slight increase in mortgage pricing. Results will be posted at 1:00 PM ET, meaning this is an early afternoon event to watch.

Today’s only relevant economic data was Novembers Consumer Confidence Index (CCI) at 10:00 AM ET. The Conference Board announced a reading of 96.1 that was a decline from October’s revised 101.40, but close to forecasts. The decline indicates that consumers felt less optimistic about their own financial situations than they did last month. Because waning confidence usually translates into softer levels of consumer spending, we should consider the data neutral to slightly positive for mortgage rates.

Tomorrow is packed with economic releases for the markets to digest. The day begins with the last week’s unemployment figures at 8:30 AM ET. They are expected to show that 735,000 new claims for unemployment benefits were filed last week, down from the previous week’s 742,000. Rising claims is a sign of employment sector weakness. Therefore, the higher the number tomorrow morning, the better the news it is for rates.

Octobers Durable Goods Orders will also be released at 8:30 AM ET. This data helps us measure manufacturing strength by tracking orders for big-ticket items or products that are expected to last three or more years, such as airplanes, appliances and electronics. It is known to be quite volatile from month-to-month, so sizable swings from the previous month are fairly normal. It is expected to show a 0.9% rise in new orders. A smaller than expected increase would be considered good news for the bond market and mortgage rates as it would indicate the manufacturing sector was not as strong as thought. We need to see a sizable variance from forecasts though for the markets to have a noticeable reaction due to the usual volatility in the data.

Also early tomorrow morning will be the release of the first revision to the 3rd Quarter Gross Domestic Product (GDP). It is expected to show no change from last months preliminary estimate of a 33.1% annual rate of growth. The GDP measures the total of all goods and services produced in the U.S. and is considered to be the benchmark measurement of economic growth. Good news for rates would be a downward revision, meaning the economy was not as strong as previously thought. However, this data is somewhat aged at this point covering the July, August and September months. That means it will take a noticeable revision to cause a move in rates.

Octobers Personal Income and Outlays data is also set for release tomorrow morning. This data measures consumers ability to spend and their current spending habits. It also includes an inflation reading (PCE index) that the Fed relies on when making their monetary policy decisions. Because consumer spending is such a large part of the U.S. economy and controlling inflation is a key part of the Feds responsibilities, data such as this can influence the markets and mortgage rates. The bond market tends to thrive in weaker economic conditions, so good news for mortgage rates would be softer than expected readings. Current forecasts are calling for a no change the income reading while spending rose 0.3%.

The week’s least important report is October’s New Home Sales data at 10:00 AM ET. It will give us an indication of housing sector strength. Analysts are expecting to see an increase between September and Octobers sales of newly constructed homes. It will take a large change in sales for this data to influence mortgage rates, partly because this report tracks such a small portion of all home sales. Last weeks Existing Home Sales report covers most of the home sales in the U.S.

Concluding the week’s economic releases will be the revised University of Michigan Index of Consumer Sentiment for November at 10:00 AM. Current forecasts are calling for little change from the 77.0 preliminary reading two weeks ago, meaning surveyed consumers felt nearly the same about their own financial and employment situations as they did earlier in the month. Bond traders would prefer to see a decline because waning confidence usually means consumers are less likely to make a large purchase in the near future, restricting economic growth. As long as we dont see a large upward move, the report will likely have a minimal impact on rates.

The final event of the week will be the release of the minutes from the last FOMC meeting during afternoon trading. Traders will be looking for any indication of the Feds next move regarding monetary policy from discussion of the participating members. The minutes will show what economic concerns members have about the pandemic, lack of another stimulus package and what the near future holds. They will be released at 2:00 PM ET, therefore, any reaction will come during mid-afternoon trading. These minutes may lead to afternoon volatility, or they may be a non-factor. Because they do carry the potential to influence mortgage rates, they should be watched.

 ©Mortgage Commentary 2020