This week in the Economy: October 26th - 30th
Massive Treasury auctions and a big day of economic reports on Friday could combine for market-moving news throughout the week. Currently, we are in a floating status for rate locks while mortgage bonds are trading sideways with potential to move higher. If we can break through resistance, then mortgage rates should improve from their current levels.
Reports to Watch
The information below is a highlight of the reports due out this week. For more detailed information and insight, view the Economic Calendar, the Daily Market Update, and our exclusive Market News. And don’t forget, you can easily download the Economic Calendar to your Outlook Calendar to make sure you don’t miss important economic releases. Just click here to read instructions for downloading to Outlook.
- Consumer Confidence for October kicks off the week on Tuesday. Last month, confidence was reported at 53.1. This month’s report is expected to climb up slightly to 54.0.
- Coming after last week’s better-than-expected Existing Home Sales, New Home Sales for September will be reported on Wednesday. New Home Sales for August were reported at 429,000, slightly lower than expectations of 441,000. The inventory of unsold homes dropped to a 7.3-month supply--down from the previous reading of 7.5% and the lowest since January 2007. The report due out this week is expected to show an increase in New Home Sales to 440,000 for September.
- Durable Goods Orders will also be reported on Wednesday. Durable Goods Orders are considered a leading indicator of manufacturing activity, and the market often moves on this report despite the fact that its headline number is a less-than-perfect indicator of activity. Last month, Durable Goods Orders for August unexpectedly fell 2.4% for the largest decline since January. The report for September is expected to be reported at 0.7%.
- On Thursday, the Gross Domestic Product (GDP) and GDP Chain Deflator for the third quarter will be reported. The Chain Deflator is a key inflation measure included in the GDP Report. And since inflation is the archenemy of Bonds and home loan rates, this report could be a market mover. Unlike the Consumer Price Index--which is a more closely watched inflation indicator--the Chain Deflator has the advantage of not being a fixed basket of goods and services, so changes in consumption patterns or the introduction of new goods and services will be reflected in the Chain Deflator. GDP is expected to be reported at 3.1% compared to last quarter’s -0.7%, while the Chain Deflator is expected to come in at 1.3% from 0.0% last quarter.
- The all-important Core Personal Consumption Expenditure (PCE) and Year-Over-Year PCE will also be released this Friday. This is the Fed's favorite gauge of inflation so the markets will be playing close attention to this report.
- Friday also brings another look at Personal Income and Personal Spending. Personal Spending is expected to be reported at -0.4%, which would be down from last month’s reading of 1.3%. Personal Income is also expected to be down to 0.0% from last month’s reading of 0.2%.
- The Chicago PMI will be released on Friday as well. This is a big report for the markets because many industry experts use it to help predict the upcoming ISM report. Last month’s reading was reported at 46.1, and this month’s is expected to come in at 48.5 when it’s released.
- The Employment Cost Index (ECI) caps off the week of heavy hitters. This index is a comprehensive measure of labor costs and represents the price of labor as compensation per employee-hour worked, during the previous quarter. As such, the ECI is one way to evaluate wage trends and the risk of wage inflation, as well as possible price pressures. If wage inflation threatens, it is possible interest rates will rise through Bond prices dropping or Fed intervention.
The X Factor
This week, the Treasury Department auctions off a massive $123 Billion worth of Securities. That’s even more than anyone expected last week when the Treasury announced the amounts of this week auctions. Here’s how the auctions break down this week:
- $7 Billion in TIPS on Monday
- $44 Billion in 2-yr Notes on Tuesday
- $41 Billion in 5-yr Notes on Wednesday
- $31 Billion in 7-yr Notes on Thursday
This massive amount is enough to shake up the market all by itself if it isn’t received well. Then, when you combine that with the fact that the Fed’s purchase program of MBS is slowing and coming to an end, you can see how the X Factor has the potential to move the market this week as much as the heavy-hitting reports on tap.
The Bottom Line
Mortgage Bonds were able to stabilize last week but still closed below a key floor of support at the 200-Day Moving Average. The battle begins again this week.
Courtesy of Mortgage Market Guide