This Week's Market Commentary

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 were closed yesterday in observance of the Memorial Day holiday and reopened for regular trading this morning.

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