There are six monthly economic reports scheduled for release this week, in addition to two Treasury auctions that may influence mortgage rates also. Even though there isn’t economic data set for release every day, there is at least one event scheduled each day that has the potential to affect mortgage pricing.
This week's activities start tomorrow afternoon with the first of two Treasury auctions that have a decent chance of affecting mortgage rates. There is a 10-year Treasury Note sale tomorrow and a 30-year Bond sale Tuesday. It is common to see some temporary weakness in bonds ahead of these sales as participating firms sell current holdings to prepare for them. The results of the auctions will be posted at 1:00 PM ET each day. If the demand from investors was strong, the bond market could rally during afternoon trading, possibly leading to lower mortgage rates. On the other hand, a poor demand may fuel afternoon weakness and upward revisions to mortgage pricing Monday and/or Tuesday.
Next up is the Consumer Price Index (CPI) at 8:30 AM ET Tuesday. This index is one of the more important pieces of data the bond market gets each month. It will give us a measurement of inflationary pressures at the consumer level of the economy. There are two portions of the report that analysts watch- the overall reading and the core data. The core data carries more significance to market participants because it excludes more volatile food and energy prices. If it shows rapidly rising prices, inflation fears may hurt bond prices since it erodes the value of a bond's future fixed interest payments and causes the Fed to be more aggressive with key short-term rate hikes. Weaker than expected readings would be favorable news for the bond market and mortgage rates. Current forecasts are calling for a 0.5% rise in the overall reading and the core data to rise 0.2%.
Wednesday’s only release comes during afternoon hours, when the Federal Reserve's Beige Book report will be posted. This report is named simply after the color of its cover but provides opinion on economic conditions throughout the U.S. by Fed region. Since the Fed relies heavily on the contents of this report during their FOMC meetings, its results can have a fairly big impact on the financial markets and mortgage rates if it reveals any significant surprises. The report will be released at 2:00 PM ET, so any reaction will come during mid-afternoon trading.
Thursday has two reports scheduled with one being much more important for rates than the other. The Commerce Department will release March's Retail Sales data at 8:30 AM ET. This piece of data gives us a measurement of consumer spending, which is extremely important because that category makes up over two-thirds of the U.S. economy. Forecasts are calling for a large increase of 5.4% in spending, fueled by the economic stimulus checks that went out last month. A jump of that size would normally be concerning to the bond market. However, since it is artificially boosted by the stimulus funds, we shouldn’t see a noticeable reaction unless the increase was much higher or lower than expected. The weaker the level of spending, the better the news it is for mortgage pricing.
March's Industrial Production data will be posted at 9:15 AM ET Thursday. It tracks output at U.S. factories, mines and utilities, translating into an indication of manufacturing sector strength. Analysts are expecting to see a 2.8% rise in production. This data is considered to be only moderately important to rates though. Since it comes on the same day as the CPI, don't expect too much of a reaction to it. Weaker manufacturing levels are favorable to mortgage rates.
The first of Friday’s two reports is March's Housing Starts at 8:30 AM ET. This data tracks groundbreakings of new home construction and gives us a measurement of housing sector strength. The report is expected to show a sizable increase in new starts last month, indicating strength in the housing sector.
The week closes with the University of Michigan's Index of Consumer Sentiment for April late Friday morning. This index will give us an indication of consumer confidence that hints at consumers' willingness to spend. If confidence is rising, consumers are more apt to make large purchases. But, if they are growing more concerned of their personal financial or employment situations, they probably will delay making that purchase. This influences future consumer spending data and can have a moderate impact on the financial markets. Good news would be a sizable decline from March's 84.9 reading. Current forecasts are calling for a reading of approximately 88.0.
Also worth noting is that we are heading into corporate earnings season where publicly-traded companies post their quarterly earnings and forward projections. Next week will be busier than this coming week with a higher number of announcements and larger companies reporting, but this week will be the first active week of earnings. Generally speaking, bad news for stocks is good news for bonds and could lead to lower mortgage rates. Disappointing earnings should drive stocks lower, causing funds to shift into bonds and mortgage rates to move lower. But stronger earnings could lead to bond selling and higher mortgage rates.
Overall, Tuesday or Thursday are the best candidates for most active day for rates due to the importance of the data coming those days. But the truth is, we could see rates become volatile any day, especially when stocks are in the forefront. Bonds have had nice run recently that have pushed yields and mortgage rates lower. It has been enough of a move that we could see some pressure build before making another leg downward. That is speculation of course, but it would be prudent to keep an eye on the markets if still floating an interest rate and closing in the near future. This is because risk versus reward of floating, when closing soon, has tilted more towards risky in my opinion.