Mortgage Market Update
This week brings us the release of only four pieces of monthly economic data that may influence mortgage rates in addition to a Treasury auction and the minutes from last month's FOMC meeting. One of those reports is considered to be extremely important. There is nothing of importance set for tomorrow, but at the moment it looks as if we could open the new week with bond gains and a slight improvement to rates.
Activities start early Tuesday morning with the release of July’s Retail Sales data. This Commerce Department report will give us a measurement of consumer spending that is extremely relevant to the markets because it makes up over two-thirds of the U.S. economy. Current forecasts are calling for a 0.2% decline in sales, meaning consumers spent less last month than they did in June. Analysts are expecting to see a 0.2% rise in sales if more costly and volatile auto transactions are excluded. Stronger than expected sales would be considered bad news for bonds and likely lead to an increase in mortgage pricing since it would indicate faster than thought economic growth.
Also Tuesday morning is the release of August's Industrial Production data at 9:15 AM ET. It is a measurement of manufacturing sector strength that tracks output at U.S. factories, mines and utilities. It is considered to be moderately important, meaning it can influence mortgage rates if it shows a noticeable variation from forecasts. However, the sales data will draw much more attention Tuesday morning than this report will. A 0.5% rise from July's level of output is what market participants are expecting to see. A larger increase would be negative news for bonds and mortgage rates, while a weaker than expected figure would be considered favorable news.
Wednesday has three items scheduled that we will be watching, one in the morning and two during afternoon trading. The first will be July's Housing Starts at 8:30 AM ET, giving us an idea of housing sector strength and future mortgage credit demand. It usually doesn't cause much movement in mortgage rates unless it varies greatly from forecasts. Wednesday's release is expected to show a small decline in new home groundbreakings last month. The lower the number of starts, the better the news for the bond market, as it would hint at a weaker than expected new home portion of the housing sector.
The afternoon events start with the auction of 20-year Treasury Notes. Results of the sale will be posted at 1:00 PM ET. If investor demand was strong, we could see the broader bond market improve and mortgage rates move slightly lower during early afternoon trading. On the other hand, a lackluster interest could pressure bonds and lead to a slight upward revision to rates before the end of the day Wednesday. Last week’s sales were split with the 10-year Note sale drawing an extremely strong demand while 30-year Bonds attracted an average level of interest.
Finishing Wednesday’s calendar will be the release of the minutes from the last FOMC meeting. Market participants will be looking for how Fed members voted during the last meeting and any comments about concerns in the economy, particularly the impact of the recent Covid surge and inflation. Talk about when the Fed may start tapering their bond buying program will also be of interest to traders. Since the minutes will be released at 2:00 PM ET, if there is a market reaction to them it will be evident during mid-afternoon trading. This is one of those events that can cause significant movement in rates after its release or be a non-factor. Therefore, be prepared for a move, but not surprised if the impact on rates is minimal.
Besides the weekly unemployment update, we will also get July's Leading Economic Indicators from the Conference Board Thursday morning. They are a New York-based business research group and not a governmental agency. This index attempts to measure economic activity over the next three to six months and is considered to be moderately important. A higher than expected reading is bad news for the bond market because it would be predicting that the economy may be stronger than thought. However, a weaker reading means that the economy may not grow as much as predicted, making bonds more appealing to investors. It is expected to show an increase of 0.8% in the index, indicating relatively strong economic growth over the next couple of months. It will take a sizable difference between forecasts and its actual reading for this report to noticeably influence mortgage rates.
Overall, Tuesday is the most important day for rates due to the Retail Sales report but Wednesday may also be active, especially during afternoon hours. The calmest may end up being Friday unless something unexpected happens. If still floating an interest rate and closing in the near future, it would be prudent to keep an eye on the markets as they may be active multiple days.