Rate Lock Advisory

Indexes Affecting Rate Lock

Low

Positive

New Home Sales

This morning’s release of May's New Home Sales report revealed a 7.3% drop in sales of newly built homes last month. The large drop surprised many since forecasts had sales rising slightly. May’s decline is a sign of weakness in the housing sector that makes the data good news for bonds and mortgage rates. That said, the data is not the reason for this morning’s bond rally. It doesn’t carry enough importance in the markets to fuel bond gains the size of this morning’s rally.

Medium

Positive

General Bond Trends

We are seeing a few things come together for bonds this morning, including lower oil prices, President Trump’s announcement of a DOJ investigation into gas price gouging that may contribute to lower prices at the pump and just a lack of unfriendly bond headlines are allowing bond prices to move higher this morning, pushing yields and mortgage rates lower.

Low

Unknown

Treasury Auctions (5,7,10,20,30 year)

We also have the results from today’s 5-year Treasury Note auction to watch. The 1:00 PM ET announcement makes this an early afternoon event for rates. While it won’t cause a noticeable move in either direction, it can affect bond trading enough to slightly improve or increase mortgage pricing during afternoon hours. Favorable news would be the benchmarks in the results pointing to a strong demand from investors. This scenario gets repeated tomorrow when 7-year Notes are being sold.

Medium

Unknown

Personal Income and Outlays

Tomorrow brings us the majority of this week’s economic releases with the weekly unemployment update, two monthly reports that draw plenty of attention and a quarterly GDP revision all set to be posted at 8:30 AM ET. The most important of the batch is May’s Personal Income and Outlays report at 8:30 AM ET that will give us an indication of consumer ability to spend and current spending activity. The theory is, if consumer income is rising, they have more money to spend each month and consumer spending makes up over two-thirds of the U.S. economy. Analysts are expecting to see a 0.4% rise in income while spending rose 0.6% during the month. Smaller than expected increases for both readings would be good news the bond market and mortgage rates.

High

Unknown

Inflation News

What makes the Personal Income and Outlays report so influential is not the income and spending readings though. This report also includes important inflation readings that the Fed heavily relies on during their FOMC meetings. Forecasts have the overall Personal Consumption Expenditures (PCE) index up 0.4% for the month while the more important core data that excludes volatile food and energy costs is predicted to rise 0.3%. The year-over-year PCE readings are expected to rise from April’s pace, indicating inflation was stronger last month than it was the month before. Stronger inflation makes long-term securities, such as mortgage bonds, less attractive to investors and may cause the Fed to raise key rates. Therefore, good news for mortgage rates would be noticeably weaker PCE readings tomorrow.

High

Unknown

Durable Goods Orders

May's Durable Goods Orders report is next in terms of importance level. It will give us an indication of manufacturing sector strength by tracking orders at U.S. factories for products that are expected to last three or more years such as airplanes, appliances and electronics. This data is known to be quite volatile from month to month, so a moderate variance from expectations is not as meaningful as it is in other reports. Forecasts show a decline in orders in the neighborhood of 4.0%. A larger drop would be good news for mortgage pricing.

Low

Unknown

GDP Rev 2 (month after Rev 1)

The second revision to the 1st Quarter Gross Domestic Product (GDP) reading is also coming tomorrow. The GDP is the sum of all products and services produced in the U.S. and is considered to be the best measurement of economic growth or contraction. However, this data is quite aged now (covers January through March) and will likely have little impact on the bond market or mortgage pricing unless it varies greatly from previous readings since market participants are looking more towards next month's release of the current quarter's initial GDP reading. Tomorrow's update is expected to match the initial revision that the economy grew at a 1.6% annual rate. A large upward revision in the GDP would be considered a negative for rates as it means the economy was stronger than thought.

Medium

Unknown

Weekly Unemployment Claims (every Thursday)

And finally, the weekly unemployment update is predicted to show 224,000 new claims for jobless benefits were filed last week. This would be a decline from the previous week’s 226,000 initial filings. Since rising claims are a sign of weakness in the employment sector, an increase from the previous week would be considered favorable for mortgage pricing. However, the first two reference reports carry much more influence in the markets than this weekly data, which should limit the impact this report will have on tomorrow’s rates.

Rate Lock Advisory

Mortgage Rate Trend

Indexes Affecting Rate Lock

New Home Sales

General Bond Trends

Treasury Auctions (5,7,10,20,30 year)

Personal Income and Outlays

Inflation News

Durable Goods Orders

GDP Rev 2 (month after Rev 1)

Weekly Unemployment Claims (every Thursday)

Float / Lock Recommendation