Mortgage Market Update
This week brings us the release of only two monthly economic reports for the markets to digest, in addition to a couple of potentially relevant Treasury auctions. The week starts off light with nothing of importance scheduled for tomorrow, Tuesday or Wednesday morning. It should be a relatively calm week for rates, although, we still should see a little movement.
The first event of the week will come Wednesday afternoon when results of the 10-year Treasury Note auction are posted at 1:00 PM ET. If investor demand was high for these securities, we may see bonds rally during afternoon trading. However, weak interest in these types of sales could lead to bond selling and an increase in mortgage rates. This process will be repeated Thursday when 30-year bonds are sold.
Next up is May's Consumer Price Index (CPI) early Thursday morning that measures inflationary pressures at the consumer level of the economy. This data is watched closely and has the potential to lead to significant volatility in the bond market and mortgage pricing if it shows a major surprise. Rising inflation makes a bond's future fixed interest payments less valuable to investors, so weaker than expected levels would be ideal for mortgage rates, especially since traders are concerned about inflationary pressures as the economy rebounds from the pandemic. Forecasts are calling for a 0.4% increase in the overall reading and the same in the more important core data that excludes volatile food and energy costs.
June's preliminary reading to the University of Michigan's Index of Consumer Sentiment will be posted late Friday morning to close out this week's calendar. This index measures consumer willingness to spend and usually has a minor to moderate impact on the financial markets. It is expected to show a reading of 84, which would be an increase from May's 82.9. A smaller than expected reading would be considered good news for bonds because it would indicate that surveyed consumers were less optimistic about their own financial and employment situations than thought. That often means they are less likely to make large purchases in the near future, but since this report is only moderately important it probably will not influence mortgage rates considerably unless we see a significant variance from forecasts.
Overall, look for Thursday to be an active day for rates due to the CPI release. Wednesday afternoon may also bring a change in rates after the 10-year Note auction results are posted. The calmest day for rates will likely be Tuesday. While this doesn’t appear to be a busy week for rates, with exception to Thursday’s activities, we still may see some movement day to day. Therefore, it would be prudent to keep an eye on the markets if still floating an interest rate and closing in the near future. This week has five relevant monthly economic reports but also has a couple of other events scheduled that are likely to affect mortgage rates. Two of the economic releases are considered to be highly important. The other events include a Treasury auction and an afternoon of Fed events. The week starts off light with nothing of importance set for tomorrow. Despite the light start, we still will likely have an active week for mortgage rates due to the importance of what appears on this week's calendar.
The week's activities start when the Commerce Department posts May's Retail Sales data at 8:30 AM ET Tuesday. This report gives us a very important measurement of consumer spending, which makes up over two-thirds of the U.S. economy. Analysts are expecting to see that retail sales fell 0.4%. The larger the decline from April, the better the news it is for bonds and mortgage rates. On the other hand, if we see stronger sales, we should expect bond weakness and an increase in rates Tuesday morning.
Also at 8:30 AM ET Tuesday will be the release of May’s Producer Price Index (PPI). It tracks inflationary pressures at the producer level of the economy. Last week’s release of the Consumer Price Index (CPI) showed much stronger than expected inflation at the consumer level. The CPI is more important than the PPI, but Tuesday’s release can also cause a fair amount of movement in inflation-sensitive bonds and possibly mortgage rates. Analysts are expecting to see a 0.5% rise in both the overall and more important core readings. Weaker numbers would be good news for rates.
The final economic release of the day will be May's Industrial Production data at 9:15 AM ET Tuesday. It will give us an indication of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. However, this report is considered to be only moderately important to mortgage rates. It is expected to show a 0.6% increase from April's production. A smaller rise, or a decline, would be favorable to bonds and mortgage pricing.
We also have a 20-year Treasury bond auction taking place Tuesday. Results will be posted at 1:00 PM ET, making this an early afternoon event. A strong demand for the securities could help improve bonds and lead to slightly lower mortgage rates. However, if the interest in the sale was lackluster, we could see bonds weaken and mortgage rates move higher Tuesday afternoon.
Wednesday’s only relevant economic data is considered to be a minor release that usually has a minimal impact on rates. That would be May's Housing Starts at 8:30 AM ET that tracks groundbreakings of new home projects but is not considered to be as important as other housing reports. Market analysts are expecting to see an increase in starts of new homes last month. Good news for the bond market and mortgage rates would be a smaller increase in groundbreakings.
The Fed is meeting for another FOMC meeting this week, adjourning Wednesday afternoon. This meeting will also include revised economic projections from the Fed. There is no chance of them changing key short-term interest rates at this meeting. However, the markets will also be looking for any indication about the Fed's future monetary policy plans, specifically about bond purchases and other moves that will affect their balance sheet or when they may start raising key short-term interest rates. It will also be interesting to see if the Fed's economic projections line up with market forecasts. The meeting will adjourn at 2:00 PM ET as will the release of the post-meeting statement and economic forecasts. The press conference will begin at 2:30 PM ET, meaning these events will affect trading and mortgage rates mid-afternoon Wednesday.
In addition to the weekly unemployment update, Thursday also has May’s Leading Economic Indicators (LEI) to close out this week’s calendar. The LEI is a Conference Board release that attempts to predict economic activity over the next several months. Therefore, a decline would be good news for the bond and mortgage markets.
Overall, the FOMC events make Wednesday the most important day of the week by default, but Tuesday should also be very active for the financial markets and mortgage pricing due to the economic data being posted that day. The calmest day may be Friday. We should see the most movement in rates midweek. If still floating an interest rate and closing in the near future, it would be prudent to keep an eye on the markets, ready to lock, since we could see a big move one direction or the other this week.