This holiday-shortened week brings us the release of only three pieces of monthly economic data that likely will affect mortgage rates, but two of them are considered highly influential to bonds. There also is a batch of Fed member speaking engagements and a couple of Treasury auctions that have the potential to influence the markets and mortgage pricing. The week starts off light with no data scheduled to be posted tomorrow.
October's Producer Price Index (PPI) will begin this week's activities early Tuesday morning. The PPI measures inflationary pressures at the producer level of the economy. Inflation data is important to the bond market because inflation erodes the value of a bond's future fixed interest payments, making them less appealing to investors today. If it reveals stronger than expected readings, indicating that inflationary pressures are still rapidly rising at the producer level, the bond market will probably react negatively and cause mortgage rates to move higher. Analysts are expecting to see a 0.6% increase in the overall reading and a 0.4% rise in the core data. The core reading is the more important of the two because it excludes more volatile food and energy prices. Weaker readings would be favorable news for mortgage rates.
Also Tuesday is the first of this week's two fairly important Treasury auctions. 10-year Treasury Notes will be sold Tuesday while 30-year Bonds go Wednesday, giving us an indication of demand for long-term securities. If the sales are met with a strong interest from investors, we should see the bond market move higher during afternoon trading those days. On the other hand, a lackluster interest from buyers, particularly international investors, would indicate a waning appetite for longer-term U.S. securities and lead to broader bond selling. The selling in bonds could cause upward revisions to mortgage rates. Tuesday's 10-year Note auction usually has the stronger impact on rates than the 30-year Bond sale does.Next up is the sister release to the PPI- the Consumer Price Index (CPI) for October, at 8:30 AM ET Wednesday. It is similar to the PPI in tracking inflationary pressures. The difference is that this one covers the more important consumer level of the economy. There are also two portions of this index- the overall reading and the core reading. Forecasts show rises of 0.5% and 0.4% respectively. As with the PPI, weaker than predicted readings would be good news for bonds and mortgage rates while stronger readings could lead to higher mortgage rates Wednesday morning.
Next up is the sister release to the PPI- the Consumer Price Index (CPI) for October, at 8:30 AM ET Wednesday. It is similar to the PPI in tracking inflationary pressures. The difference is that this one covers the more important consumer level of the economy. There are also two portions of this index- the overall reading and the core reading. Forecasts show rises of 0.5% and 0.4% respectively. As with the PPI, weaker than predicted readings would be good news for bonds and mortgage rates while stronger readings could lead to higher mortgage rates Wednesday morning.
The bond market will be closed Thursday in observance of the Veteran's Day holiday, although the stock markets will be open for trading. If lenders are open for business, they probably will use Wednesday's afternoon rates or not allow new locks until Friday morning.
November's preliminary reading of the University of Michigan's Index of Consumer Sentiment will close this week’s calendar late Friday morning. This index measures consumer confidence, which gives us an indication of consumer willingness to spend. It is expected to come in at 72.3, up a little from October's final reading of 71.7. That would be considered slightly unfavorable news for bonds because strengthening sentiment means consumers are more optimistic about their own financial situations and are more likely to make large purchases in the near future. With consumer spending making up over two-thirds of our economy, any related data is watched closely. The lower the reading, the better the news it is for mortgage shoppers.
Overall, Wednesday is the most important day for rates due to the consumer inflation data being released and an afternoon Treasury auction. Fed Chairman Powell has two appearances in this week’s large number of Fed speaking engagements. However, neither of his appearances are expected to be market movers. We should see the most movement in rates during the middle days, but the markets can get active at any time. Therefore, proceed cautiously if still floating an interest rate and closing soon.