Mortgage Market Update
This week brings us the release of five monthly economic reports for the markets to digest in addition to a couple of Treasury auctions that we will be watching. A good portion of this week's data is highly important to the financial and mortgage markets. The week starts off light with nothing of importance scheduled for tomorrow or Tuesday. Look for stock gains or losses to help dictate bond and mortgage pricing direction the first couple of days.
The first events will come Wednesday when April's Consumer Price Index (CPI) is posted at 8:30 AM ET. This report measures inflationary pressures at the consumer level of the economy. These results are watched closely because rising inflation makes long-term securities, such as mortgage-related bonds, less attractive to investors. With inflation such a hot topic in the markets currently, this type of report will have an even heavier impact on rates than usual. The overall reading is expected to rise 0.2% while the more important core data is predicted to rise 0.3%. Favorable news for bonds and mortgage rates will be smaller increases.
Besides this week's economic reports, there will also be two Treasury auctions taking place that have the potential to influence mortgage rates. 10-year Notes will be auctioned Wednesday while 30-year Bonds will be sold Thursday. Results of each sale will be posted at 1:00 PM ET on auction day. If they are met with a strong demand from investors, we could see bond prices rise enough during afternoon trading to cause downward revisions to mortgage rates. However, lackluster bidding in the sales, meaning longer-term securities are losing their appeal, could lead to higher mortgage pricing during afternoon trading.
Next up is April's Producer Price Index (PPI), scheduled for release at 8:30 AM ET Thursday. This is the sister release to the CPI but tracks inflationary pressures at the producer level of the economy. As with the CPI, there are two readings that the markets usually look at. Forecasts are calling for a 0.3% increase in the overall reading and a 0.4% rise in the core data.
The week closes Friday with three economic reports, starting with the highly important Retail Sales report for April. This is an extremely relevant report because it measures consumer spending, which makes up over two-thirds of the U.S. economy. Analysts are expecting a 1.8% increase in sales from March to April. A smaller increase should push bond prices higher and mortgage rates lower Friday morning as it would be a strong sign the economy is not as strong as thought. Bad news for rates would be a larger increase in sales.
Friday's second piece of data will be April's Industrial Production report at 9:15 AM ET. It measures manufacturing sector strength by tracking output at U.S. factories, mines and utilities. Forecasts show a 0.9% rise in production, indicating that manufacturing activity is rebounding. This report is considered to be moderately important, so it will likely need to show a noticeable variance from forecasts to cause movement in mortgage rates.
The final report of the week is going to be May's preliminary reading to the University of Michigan's Index of Consumer Sentiment late Friday morning. This index measures consumer willingness to spend that relates to consumer spending. If consumers are more confident in their own financial situations, they are more apt to make large purchases in the near future. This report usually has a moderate impact on the financial markets though, because it is not exactly factual data. It is expected to show a reading of 90.2, up from April's final reading of 88.3, indicating consumers are a little more confident than last month. If it shows a decline in confidence, bond prices could rise and mortgage rates may move slightly lower because waning confidence means consumers are likely to spend less, restricting economic growth.
Overall, Wednesday is the best candidate for most active day for rates due to the importance of the CPI and the afternoon auction results. Tuesday may be the calmest day unless something unexpected happens. We should see the most movement in rates the latter days of the week.