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  • Writer's pictureJenny Phung

Mortgage Market Update

This week has six relevant economic reports scheduled for release in addition to a couple of Treasury auctions and two days of Fed testimony before Congress. Also worth noting is that corporate earnings season is beginning, which may have a trickle effect on bonds and mortgage pricing. There is at least one item scheduled each day, meaning we should see plenty of movement in the markets and mortgage rates this week.

The two relevant Treasury auctions will take place tomorrow and Tuesday. 10-year Treasury Notes will be sold tomorrow while 30-year Bonds will go Tuesday. These sales don't directly impact mortgage rates but can affect the broader bond market that leaks into mortgage bonds. If investor demand was high for these securities, we may see bonds rally during afternoon trading midweek. However, weak interest in these sales could lead to bond selling and a possible increase in mortgage rates. Results of both auctions will be posted at 1:00 PM ET on the sale days, meaning if there is a reaction, it will come during early afternoon hours.

The first economic data of the week is June's Consumer Price Index (CPI) at 8:30 AM ET Tuesday. This is very important data because it measures inflationary pressures at the consumer level of the economy. Rapidly rising inflation erodes the value of a bond's future fixed interest payments, making them less appealing to investors. It is expected to show a 0.5% rise in the overall reading and a 0.5% increase in the core data. The core reading is the more important of the two since it excludes more volatile food and energy prices, revealing a more reliable inflation measurement. If we see weaker than predicted results that would ease inflation concerns, the bond market should react favorably and possibly lower rates. However, a larger than expected rise in the core reading could send mortgage rates higher.

Wednesday will be a busy day for the markets. It starts with the sister release to the CPI, the Producer Price Index (PPI) at 8:30 AM ET. The PPI measures inflationary pressures at the producer level of the economy, compared to the consumer level of the CPI. As with the CPI, there are also two readings that we will be watching. A large increase would fuel concerns about inflation rising at the manufacturing level. Analysts are expecting to see a 0.6% increase in the overall reading and 0.5% rise in the core data. Good news for mortgage shoppers would be weaker readings.

Also Wednesday is day one of the Fed's two-day semi-annual congressional update on the economy and monetary policy. Fed Chairman Powell will speak to the House Financial Services Committee Wednesday at noon ET and the Senate Banking Committee Thursday at 9:30 AM ET. His testimony will be broadcast and watched very closely. Analysts and traders will be looking for the Fed's opinion on the status of the economic recovery and their expectations of future growth, inflation, employment and the long-term pandemic impact. These topics have the potential to create a great deal of volatility in the markets during the prepared testimony, which is often released prior to appearing, and the Q&A session that follows.

Closing the day’s activities will be the release of the Federal Reserve’s Beige Book report at 2:00 PM ET Wednesday. This report is named simply after the color of its cover, but it is considered to be important to the Fed when determining monetary policy during their FOMC meetings. It details economic activity and conditions by Fed region throughout the U.S. If there are any significant changes in conditions since the last update, we could see an afternoon move in the markets and mortgage rates. Signs of lackluster or slowing economic growth would be favorable news for rates.

In addition to the second day of Fed testimony Thursday morning, we also have June's Industrial Production data set for release at 9:15 AM ET. This data measures output at U.S. factories, mines and utilities, giving us an indication of manufacturing sector strength. It is expected to show a 0.7% rise in production, signaling that the manufacturing sector strengthened last month. That would basically be bad news for bonds and mortgage rates, but this report is considered to be only moderately important. Therefore, any reaction will be minimal unless there is a wide variance from forecasts.

Friday has two pieces of data scheduled, one of which is considered to be highly important to the markets. That would be June's Retail Sales report at 8:30 AM ET. This Commerce Department release is expected to show that retail-level sales fell 0.5% last month. Because consumer spending makes up over two-thirds of the U.S. economy and bonds are more attractive during weaker economic conditions, this data is watched very closely. The larger the drop in sales, the better the news it is for mortgage rates.

The final economic report of the week will be the University of Michigan's Index of Consumer Sentiment at 10:00 AM ET Friday. This index is released in a preliminary form each month and then followed up two weeks later with a final reading. The preliminary reading for July will be posted Friday and is expected to show a small increase from June's final reading of 85.5. This would mean surveyed consumers were slightly more comfortable with their own financial and employment situations this month as they were last month. It is believed that if consumer confidence in their own finances is rising, they are more apt to make a large purchase in the near future. And with consumer spending making up such a large part of our economy, investors pay close attention to reports such as these. Accordingly, a decline in confidence would be good news for mortgage rates because it means many consumers are likely to delay making a large purchase in the immediate future, limiting economic growth.

This week also starts the early part of corporate earnings season where publicly traded companies report their quarterly and annual earnings results and projections. They generally affect stocks directly and not mortgage rates. Although, stock gains can sometimes pressure bonds while stock losses cause funds to shift into bonds, lowering mortgage rates. The heart of the announcements will start next week, but there are enough scheduled this week to affect the markets. These can come into play any day this week. Weaker than expected earnings should cause stock losses and bond gains that would push mortgage rates lower.

Overall, it is difficult to pick a single day as the most important for mortgage rates. Wednesday is a good candidate with one of the inflation indexes being posted and Fed Chairman Powell’s testimony during morning hours, followed by the afternoon release of the Beige Book. However, Tuesday and Friday both have highly important economic reports that can heavily influence the markets. Calmest day is an easier decision with Thursday standing out since we usually see much less of a reaction to the second day of Fed testimony. It is safe to assume that we will see plenty of movement in the markets and mortgage rates this week. Following several weeks with many economic reports, Fed appearances and other events to drive the markets and mortgage rates, we get somewhat of a reprieve this week. There is just one monthly and one weekly report scheduled that are worth watching, along with the minutes from last month’s FOMC meeting. This light of a calendar should help keep mortgage rates relatively calm this week, unless something unexpected happens.

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