Mortgage Market Update
This week brings us four pieces of monthly and quarterly economic reports, including a couple of highly important releases. In addition to the data, there are also two Treasury auctions set that may influence rates. There is nothing relevant to mortgage rates scheduled for release tomorrow, so look for the stock markets and delta-variant news to drive bond trading and mortgage rates until we get to the more important economic data midweek.
Activities start Tuesday morning with the release of Employee Productivity and Costs data for the second quarter. It helps us track employee output per hour worked. High levels of productivity are believed to allow the economy to grow with less threat of inflation. Therefore, this is one of the few reports where the stronger headline number is favorable news for rates. Forecasts have productivity rising at a 3.4% annual rate. A larger increase in productivity and a smaller rise in labor costs than 1.2% would be good news for bonds and mortgage rates.
July's Consumer Price Index (CPI) will be posted early Wednesday morning. The CPI is one of the more important reports we see each month, particularly now since it measures inflation at the consumer level of the economy and that is such a hot topic at the moment. Forecasts are showing a 0.5% rise in the overall reading and a 0.4% increase in the more important core data that excludes volatile food and energy prices. Weaker readings should help lead to lower mortgage rates since it would mean inflationary pressures at the consumer level of the economy are softer than thought.
Wednesday's 10-year Note auction and Thursday's 30-year Bond sale have the potential to affect rates during afternoon trading. It is fairly common to see some weakness in bonds before these sales as investors prepare for them. If the sales are met with a decent demand from investors, indicating that interest in longer-term securities such as mortgage-related bonds is good, the earlier losses are often recovered after the results are announced. Results of sales will be posted at 1:00 PM ET of each auction day. If demand was strong, particularly from international investors, we should see mortgage rates improve during afternoon trading those days. However, weak levels of interest could lead to broader selling in the bond market that may push mortgage rates higher.
Thursday’s primary economic release will be July's Producer Price Index (PPI). It is the sister release to the CPI but measures inflation at the producer level of the economy. Analysts are predicting an increase of 0.5% in the overall index and a rise of 0.5% in the core reading. Stronger than expected readings may fuel inflation concerns in the bond market. That would be bad news for bonds and mortgage rates because inflation is the number one nemesis of the bond market as it erodes the value of a bond's future fixed interest payments. As inflation becomes more of a concern in the markets, bonds become less appealing to investors, leading to falling prices, rising yields and higher mortgage rates.
Closing out the week’s calendar will be the University of Michigan’s Index of Consumer Sentiment for August at 10:00 AM ET Friday. This report will give us an indication of consumer confidence, which projects consumer willingness to spend. If a consumer's confidence in their own financial and employment situation is rising, they are more apt to make large purchases in the near future. But, if they are growing more concerned about their job security or finances, they probably will delay making that large purchase. This influences future consumer spending data and therefore, impacts the financial markets. It is expected to show a minor increase from July's 81.2, meaning confidence was a little stronger this month than last and that surveyed consumers are more likely to make a large purchase. Good news for mortgage rates would be a sizable decline.
Overall, Wednesday is the best candidate for most active day for rates due to the importance of the CPI. That said, it is fairly safe to assume that we will see plenty of movement in rates this week, especially the middle days. The importance of some of the data and the fact that bonds are testing a key resistance level again make it highly likely rates will move noticeably this week. Therefore, it would be prudent to watch the markets closely if still floating an interest rate and closing in the near future.