This week brings us the release of five monthly economic reports that have the potential to influence mortgage pricing. Some of those releases are considered to be highly important to the financial and mortgage markets. In addition to the data, we also will be watching the stock markets for direction. The data scheduled this week can make it an active week for the bond and mortgage markets on their own. If stocks get volatile, we could have an interesting week ahead of us. The new week starts off light with nothing of importance scheduled for tomorrow or Tuesday, meaning we will probably see the most movement in rates the latter days. The calendar will start early Wednesday morning when January's Consumer Price Index (CPI) is released. This index measures inflationary pressures at the consumer level of the economy. Its results can have a significant impact on the financial markets, especially on long-term securities such as mortgage-related bonds. Rising inflation erodes the value of a bond’s future fixed interest payments, making them less appealing to investors. Current inflation readings will influence the Fed's decisions regarding rate increases. The report is expected to show a 0.1% increase in the overall index and a 0.2% rise in the more important core data that excludes more volatile food and energy prices. If we see weaker than expected readings, bond prices should rise and mortgage rates will likely fall Wednesday. Thursday has two monthly reports set for release. The first is January's Producer Price Index (PPI) at 8:30 AM ET. It is the sister report to Wednesday's CPI, but measures inflationary pressures at the producer level of the economy. As with the CPI, there are two headline readings. They are expected to show an increase of 0.1% in the overall reading and a 0.2% rise in the core data. Good news for bonds would be a decline in both readings, particularly the core data as it would ease concerns about future inflation and would make a Fed rate hike less likely in the immediate future. Also at 8:30 AM ET Thursday will be the release of December's Retail Sales data. This data is very important to the financial markets because it measures consumer spending. Since consumer spending makes up over two-thirds of the U.S. economy, any related data is watched quite closely. If Thursday's report reveals weaker than expected retail-level sales, the bond market should react positively and mortgage rates should fall since it would be a sign that the economy is not growing as quickly as many had thought. However, a stronger reading than the 0.2% increase that is expected could lead to higher mortgage rates Thursday morning. It is worth nothing that this release was delayed from the government shutdown. January’s data will be posted at a later date that has not been announced yet. January's Industrial Production data will be released mid-morning Friday. It helps us measure manufacturing sector strength by tracking output at U.S. factories, mines and utilities and can have a moderate impact on the financial markets. Analysts are expecting to see a 0.2% increase in production levels from December to January. A decline in output would be good news for bonds and mortgage pricing. The final report of the week will be February's preliminary reading to the University of Michigan's Index of Consumer Sentiment late Friday morning. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets because consumer spending makes up such a large portion of the U.S. economy. If it shows an increase in consumer confidence, the stock markets may move higher and bond prices could fall. It is currently expected to show a 94.0 reading, up from January's final reading of 91.2. That would indicate consumers were more optimistic about their own financial situations than last month. Ideally, we would prefer to see a large decline in this reading. Overall, Wednesday and Thursday are the best candidates for most active day of the week in terms of mortgage rates movement. Wednesday’s CPI is the single most important economic release of the week. Thursday’s Retail Sales data is normally a major release also, but December’s data is somewhat aged at this point so we may not see as much of a reaction as we usually do. Tuesday is likely to be the calmest for rates, as long as stocks don’t stage a significant rally or sell-off. With several highly important reports set for release this week, it would be prudent to keep an eye on the markets if closing in the near future and still floating an interest rate.
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