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  • Writer's pictureJenny Phung

Mortgage Market Update

This week brings us the release of four pieces of monthly economic data that are relevant to mortgage rates with one of them considered to be extremely important. In addition to those reports, there are also a couple of Treasury auctions and the FOMC minutes for the markets to digest. The bond market will be closed tomorrow in observance of the Columbus Day / Indigenous People Day holiday as will most banks, so there will not be an update to this report. The stock markets will be open for trading though. This means that many lenders that are open for business will likely not be issuing new rates tomorrow, opting to use Friday afternoon's pricing or not accepting new rate locks. The bond market will reopen for regular trading Tuesday morning.

The first event of the week is not an economic report. It will be the 10-year Note auction Tuesday afternoon. These auctions don’t directly impact rates, but they do influence broader bond market sentiment. If there is a decent demand from investors, we should see strength in bonds after results are posted at 1:00 PM ET. However, a lackluster interest from investors- particularly international buyers, the bond market may move lower during early afternoon trading and mortgage rates could move higher.

September's Consumer Price Index (CPI) will start this week's economic releases at 8:30 AM ET Wednesday. It tracks inflationary pressures at the very important consumer level of the economy. Rising inflation erodes the value of a long-term bond's future fixed interest payments, making them less appealing to investors now and causes the Fed to be more aggressive with key short-term interest rates. Often, the quickly rising inflation results in higher mortgage rates. Analysts are expecting to see a 0.3% increase in the overall index and an increase of 0.2% in the more important core data that excludes volatile food and energy costs. A larger than expected increase in the core reading would be bad news, likely pushing bond prices lower and mortgage rates higher, while weaker numbers should help lower rates Wednesday.

Wednesday also has two afternoon events that may have an impact on mortgage pricing. One will be the 30-year Treasury Bond auction. Results of it will be posted at 1:00 PM ET. As with Tuesday’s 10-year sale, a strong demand should help boost bond prices and possibly cause a slight improvement to rates.

The third event of the day will be the minutes from last month's FOMC meeting at 2:00 PM ET. These may move the markets or could be a non-factor, depending on what they show. The key points traders are looking for are concerns among Fed members about the employment sector, rising inflation and what action the Fed may need to take to keep the economy growing but prevent inflation from overheating. It is worth noting though that the last FOMC meeting was followed by revised economic predictions and a press conference with Fed Chair Powell. Therefore, the likelihood of seeing a significant surprise in the minutes is relatively low.

Thursday’s sole monthly report will be September's Producer Price Index (PPI) at 8:30 AM ET. This index is the sister release of the CPI, measuring inflationary pressures at the manufacturing level of the economy. It is expected to show a 0.5% rise in both the overall and core readings. Good news for mortgage rates would be weaker readings.

Friday has two relevant reports scheduled, starting with the highly important Retail Sales data at 8:30 AM ET. This Commerce Department report measures consumer level sales and is so important to the markets because consumer spending makes up over two-thirds of the U.S. economy. If spending is strong, overall economic growth is likely to be stronger, making bonds less attractive to investors. If we see weaker than expected readings in this report, the bond market should respond favorably, pushing mortgage rates lower. Current forecasts are calling for a 0.2% decline in sales. Good news for the bond market and mortgage pricing would be a larger decline.

The last release of the week will be posted by the University of Michigan late Friday morning. Their Index of Consumer Sentiment for October will give us an indication of consumer confidence, which helps us measure consumer willingness to spend. If consumer confidence in their own financial situations is rising, they are more apt to make large purchases in the near future. On the other hand, 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, can impact the financial markets. It is expected to show a reading of 74.0, meaning confidence was a bit stronger from September's level of 72.8. A decline would be considered favorable news for bonds and mortgage rates because waning consumer spending usually translates into slower economic growth.

Overall, Friday looks to be the most important day for mortgage rates due to the importance of the Retail Sales data and the fact multiple reports will be posted, but Wednesday could be active with the release of the CPI. There is something that may affect mortgage rates scheduled each day this week, so it would be prudent to keep an eye on the markets if closing in the near future and still floating an interest rate.

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