This week brings us the release of five monthly reports for the bond market to digest in addition to a Fed-filled day in the middle part of the week. Geopolitical events (Ukraine/Russia) may also affect the financial and mortgage markets. The most important reports and Fed events take place the middle days, so we may see the most movement in mortgage rates those days.
The calendar will kick off mid-morning tomorrow when February's Industrial Production report is posted at 9:15 AM ET. This report measures manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to show a 0.1% increase from January's level. A decline would be considered favorable news for bonds and mortgage rates because it would indicate manufacturing sector weakness and broader economic growth would be more difficult if manufacturing activity is slipping.
Also worth noting is this weekend’s vote for Crimea to break away from Ukraine and become part of Russia. By theory, the escalation in the crisis should rattle global stock markets and create a flight-to-safety in bonds where investors shift funds away from the stock selling into bonds for safety. That causes bond yields to drop and mortgage rates move lower. However, this vote and its results were pretty much a foregone conclusion so it will be interesting to see exactly what transpires when our markets open tomorrow morning. We should have more information on this topic and how it is affecting mortgage rates by the time we post our daily report tomorrow morning. But please keep in mind that most geopolitical flight-to-safety moves usually reverse course fairly quickly. And since mortgage rates tend to spike higher quicker than they move lower, I strongly recommend proceeding cautiously if relying on this crisis to push rates lower.
February's Consumer Price Index (CPI) will be released at 8:30 AM ET Tuesday, which measures inflationary pressures at the very important consumer level of the economy. Its results are watched closely by bond market traders and analysts because rising inflation makes long-term securities such as mortgage-related bonds less appealing to investors. It is expected to show a 0.2% increase in the overall index and a 0.1% rise in the more important core data that excludes more volatile food and energy prices. If we see weaker than expected readings like we did in last week’s Producer Price Index (PPI), bond prices should rise and mortgage rates will likely fall early Tuesday.
Also early Tuesday morning, February's Housing Starts data will be released. This report tracks construction starts of new housing. It doesn't usually cause much movement in mortgage rates and is considered one of the less important reports we see each month. It is expected to show an increase in housing starts, indicating growth in the housing sector. Good news for the bond market and mortgage rates would be a sizable decline in new starts, but unless we see a large variance from forecasts the data likely will not lead to a noticeable move in mortgage pricing.
Wednesday is the day with several Fed events scheduled. They start with the 2:00 PM ET adjournment of the two-day FOMC meeting that began Tuesday. It is widely expected that Fed Chairman Yellen and company will not change key short-term interest rates at this meeting, although market participants will be watching the post-meeting statement closely for changes in verbiage that could indicate a swing in the Fed’s thought process and potential move in the future. They also will be watching for another adjustment to the Fed’s bond buying program or the pace that the Fed is reducing that campaign. Any surprises on these topics could heavily influence the markets and mortgage rates.
The FOMC meeting is ending a little earlier than the traditional 2:15 PM because it is one of the meetings that will be followed by a press conference with Chairman Yellen (her first as Chairman). The meeting will adjourn at 2:00 PM while the press conference will begin at 2:30 PM and will probably lead to afternoon volatility in the markets and mortgage rates Wednesday. The Fed will also update their economic and monetary policy projections when the meeting adjourns at 2:00 PM. Any significant revisions to the Fed's outlook on unemployment, GDP growth or their timetable for keeping key rates at current levels will also cause volatility in the markets and mortgage rates.
February's Existing Home Sales will be posted late Thursday morning by the National Association of Realtors. It will give us a measurement of housing sector strength and mortgage credit demand. It is expected to reveal a small decline in home resales, meaning the housing sector was flat last month. Ideally, bond traders would prefer to see a decline in sales, pointing towards a weakening housing sector. Bad news would be a sizable increase in sales, indicating that the housing sector is gaining momentum. That could be troublesome for the bond market and mortgage rates because housing and unemployment the two primary hurdles the economy has to overcome. A soft housing sector makes broader economic growth less likely, so the weaker the level of sales, the better the news it is for mortgage rates.
The Conference Board will post its Leading Economic Indicators (LEI) for February late Thursday morning also. This index attempts to measure economic activity over the next three to six months. It is considered to be moderately important, but likely will not have a significant impact on mortgage rates. Current forecasts are calling for a 0.3% increase, meaning it is predicting that economic activity will likely expand modestly in the coming months. A smaller than forecasted rise, or better yet a decline would be considered good news for the bond market and mortgage rates.
Overall, I am considering Wednesday as the key day of the week with the Fed events scheduled, but tomorrow could be interesting also due to the Ukraine/Russia conflict. The least important day will probably be Friday, however, we could see noticeable movement in rates any day.