Market Commentary

Updated on May 26, 2020 10:20:39 AM EDT

There were two relevant economic reports posted this morning. One was May's Consumer Confidence Index (CCI) at 10:00 AM. The Conference Board announced a reading of 86.6 that was a bit lower than expectations. However, a downward revision to April's reading means confidence did rise slightly last month as forecasts were calling for. The increase indicates surveyed consumers felt a little better about their own financial and employment situations this month than did in April. Rising confidence is a sign that consumers are more apt to spend money in the near future, fueling economic growth. While that is technically bad news for bonds and mortgage rates, it is worth noting that May's reading is over 45 points lower than February, when the coronavirus became well known here in the U.S.

April's New Home Sales report was also posted late this morning, revealing a 0.6% rise in sales of newly constructed homes. That is surprising considering that the country was in shutdown mode because of the pandemic. In fact, analysts were expecting to see a large decline in sales. Fortunately, this report tracks only approximately 10% of all home sales in the U.S. and does not carry a high level of importance in the markets. We can consider the report negative news for rates, but it has had little influence on this morning's pricing.

Tomorrow does not have a morning economic release that we need to be concerned with but does have two afternoon events that we will be watching. The first is the 5-year Treasury Note auction. These types of sales generally do not directly impact mortgage pricing, although they can influence general bond market sentiment. If the sale goes poorly, we could see broader selling in the bond market that leads to a slight upward revision to mortgage rates. On the other hand, a strong demand from investors usually makes bonds more attractive to investors, bringing additional funds into the market. The buying that follows sometimes translates into lower mortgage rates. Results will be posted at 1:00 PM ET, so look for any reaction to come during early afternoon hours tomorrow.

The second afternoon event is the Federal Reserve's Beige Book that is named simply after the color of its cover. This report details economic conditions throughout the U.S. by Federal Reserve region. It is relied upon heavily by the Fed to determine monetary policy during their FOMC meetings. Tomorrow's update is expected to show significant weakness since the last version, which would be favorable to mortgage rates. It will be posted at 2:00 PM ET, meaning if it is going to affect rates, it will happen during mid-afternoon hours.

Overall, Thursday is a good candidate for the most active day of the week for rates due to the importance of the Durable Goods Orders and GDP reports. Friday also may be active with two reports and a speaking engagement for Fed Chairman Powell late morning. The calmest morning will probably be tomorrow, but there is a chance of seeing afternoon movement. With so much going on this week, it would be prudent to keep an eye on the markets if still floating an interest rate and closing in the near future.

 ©Mortgage Commentary 2020


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