Monday – Subdued Start with an Eye on New Home Sales
The week commenced with a quiet tone, with the only data release being the new home sales report, which has little to no influence on mortgage rates at this point. That said, the report showed new sales for January landed slightly short of expectations, registering at an annual rate of 661,000 versus an expected 680,000 new sales.
Although there was minimal movement over the weekend and throughout the day, the anticipation of Thursday's upcoming PCE report on mortgage rates kept the market on alert. Rates concluded at 7.13%, setting a cautious tone for the days ahead.
Tuesday – Economic Data Sheds Light on Market Dynamics
Tuesday brought the release of the GDP report for the 4th quarter of 2023, showing growth in the US economy at an annual rate of 3.2%, marginally below consensus expectations of 3.3%. This broad economic indicator, while significant, is considered stale by the market due to its retrospective nature as it measures economic growth from October to December of 2023. Consequently, its impact on the day's trading was limited.
Next up was home price appreciation data as The CoreLogic Case-Shiller indices showed that despite the upward trajectory of mortgage rates over the past 2 months, home prices continued to appreciate nationwide, up 5.5% year over year, an increase from November's annual run rate of 5%.
Viewing the situation with optimism, the 5.5% increase in home prices, though significant, is markedly less than the 20% surge experienced in 2022. Additionally, with interest rates remaining higher than expected at this juncture, we're seeing a gradual accumulation of inventory. This trend suggests that the housing market may be entering a phase of softening.
We can all agree that a more tempered housing market is a good sign for both consumers and inflation, but until we see these price trends reflected in the PCE and CPI reports, they will have little influence on mortgage rates or the bond market.
The day ended with mortgage rates edging up to 7.16%, reflecting the nuanced market reactions to economic data in the early part of the week.
Wednesday – Market Indifferent to PCE, Focus on Mortgage Trends
The release of the PCE data on Wednesday was part of the 4th quarter GDP data, which, due to its backward-looking nature, failed to significantly impact the markets, overshadowed by more timely January PCE data due out on Thursday.
The mortgage market, however, showed clearer signs of the times. The Mortgage Bankers Association reported a continued decline in mortgage application volume, down 5.6% from the previous week. This is the 3rd consecutive week that application volume has declined, which is not a great sign for those anticipating a robust spring housing market. This trend reflects the tight correlation between interest rates and buyers' willingness to enter the housing market as the fight between demand and affordability pressures endures.
Despite the lack of any impactful data, mortgage rates saw a slight decrease to 7.15%.
Thursday – A Comprehensive Look at Economic Indicators
Thursday offered a wealth of economic data, starting with the much-anticipated Personal Consumption Expenditures Index (PCE). The data came in mixed as the core price index (all items excluding volatile food and energy), the Federal Reserve's preferred measure of inflation, increased by .4% month over month, significantly higher than the .1% recorded in the previous month. The good news was that at an annual run rate, core PCE inflation was 2.7%, down from 2.8% last month, a positive sign for the longer-term trend. This data provides evidence that inflation may be moving in the right direction, although the overall picture remains mixed.
Surprisingly, the biggest market mover on Thursday came from weekly jobless claims, which increased by 13,000 compared to last month. Continuing claims came in at 1.9 million, the highest level since last November. The four-week moving average of continuing claims was 1.88 million, its highest level since Dec. 11, 2021.
The decline in labor market sentiment was compounded by a noticeable dip in consumer confidence in February, falling to 106.7 from January's revised figure of 110.9. This decline in confidence was due less in part to concerns over inflation but growing worries about the labor market and political climate, adding another layer of complexity to the economic outlook. Despite these varied signals, mortgage rates experienced a slight improvement, closing at 7.10%.
Now, remember, there is no celebrating people losing their jobs. Still, it is essential to remember that negative economic data is positive for interest rates. It reinforces the argument that it is time for the central bank to start lowering rates and removing its restrictive monetary policy.
Friday – Manufacturing Data and Market Optimism
The ISM Manufacturing index's fall to 47.8 (An index greater than 50 signals growth) highlighted a contraction in the sector, as declines in new orders, production, and employment signaled potential economic headwinds. This data, particularly in light of next week's jobs report, paints a cautious picture of the manufacturing and employment landscape.
Yet, this contraction also triggered a bond market rally, improving mortgage rates to the best levels seen in more than two weeks. The implications of these trends, especially with the ISM services data on the horizon, suggest a market in flux, responsive to both the broader economic signals and specific sectoral performances.
Mortgage rates ended the week at 7.08%, reflecting a complex interplay of factors that continue to shape the rate landscape.
Looking Ahead
As we move into the next week, all eyes will be on the employment data and the upcoming CPI report. These indicators will be crucial for understanding whether the current mortgage rate trend will hold or shift. The economic indicators from this past week present a nuanced view of the economy, with consumer sentiment, manufacturing performance, and housing market dynamics each playing a role in shaping future expectations.
Next week marks the beginning of a series of weeks that bring significant market-moving data and monetary policy updates.
Starting on Tuesday, the spotlight falls on the ISM services data, offering a key perspective on the dominant service sector of the U.S. economy, which has largely resisted sharp inflationary declines.
Wednesday shifts focus to the private sector with the ADP employment report, providing an early look at employment trends, alongside Federal Reserve Chair Jerome Powell's much-anticipated testimony before Congress. With Powell's influence, the markets will be keenly attentive to any hints on future monetary policy directions.
The week continues on Thursday with the release of weekly jobless claims, offering further insights into the labor market's health. Powell's testimony enters its second day, potentially adding more layers to the market's expectations.
The crescendo arrives on Friday with the BLS jobs report, a comprehensive snapshot of the employment landscape. Given its recent impact on market sentiment, any significant deviation from expectations could directly influence mortgage rates.
This week's lineup of economic indicators and policy narratives sets the stage for a dynamic period in the financial markets, emphasizing the need for vigilance and readiness to navigate potential rate movements.
Next Weeks, Notable economic reports
Monday - No reports
Tuesday - ISM services
Wednesday - ADP employment, Jerome Powell Testifies
Thursday - Initial Jobless Claims, Consumer Credit, Jerome Powell Testifies day 2
Friday - BLS Jobs report
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