There are six monthly economic reports scheduled for release this week, in addition to two Treasury auctions that may influence mortgage rates. We also start to head into corporate earnings season, which may come into play this holiday-shortened week. It starts off light with nothing set for tomorrow except for a couple of Fed speaking engagements.
This week's activities start Tuesday morning with the release of March’s Consumer Price Index (CPI) at 8:30 AM ET. This index is one of the more important pieces of data the bond market gets each month since it gives us an idea of how strong inflationary pressures are at the consumer level of the economy. There are two portions of the report that analysts watch- the overall reading and the core data. The core data carries more significance to market participants because it excludes more volatile food and energy prices. If it shows prices are rising faster than expected, further inflation fears may hurt bonds and cause an increase in mortgage rates. Inflation is the number one nemesis of the bond market since it erodes the value of a bond's future fixed interest payments, causing traders to sell them at a discount. It also forces the Fed to be more aggressive with key short-term rate hikes. Weaker than expected readings would be favorable news for the bond market and mortgage rates. Current forecasts are calling for a 1.2% rise in the overall reading and the core data to rise 0.5%.
Also Tuesday but during afternoon trading will be the results of the 10-year Treasury Note auction. This sale will be followed by a 30-year Bond sale Wednesday. It is common to see some temporary weakness in bonds ahead of these sales as participating firms sell current holdings to prepare for them. The results of the auctions will be posted at 1:00 PM ET each day. If the demand from investors was strong, the bond market could rally during afternoon trading, possibly leading to lower mortgage rates. On the other hand, a poor demand may fuel afternoon weakness and upward revisions to mortgage pricing Tuesday and/or Wednesday.
March's Producer Price Index (PPI) will be posted early Wednesday morning. It is the sister release of Tuesday’s CPI, but measures inflationary pressures at the producer level of the economy. Analysts are expecting to see a 1.1% increase in the overall reading and a 0.5% rise in the core reading. As with the CPI, lower readings would be good news and may push mortgage rates lower.
Thursday has two reports scheduled with one being much more important for rates than the other. The Commerce Department will release March's Retail Sales data at 8:30 AM ET. This piece of data gives us a measurement of consumer spending, which is extremely important because that category makes up over two-thirds of the U.S. economy. Forecasts are calling for an increase of 0.6% in spending, indicating consumers spent more last month than in February. The weaker the level of spending, the better the news it is for mortgage pricing.
The University of Michigan's Index of Consumer Sentiment for April will be announced late Thursday morning. This index will give us an idea of consumer confidence that hints at consumers' willingness to spend. If confidence in employment and financial situations are rising, consumers are more apt to make large purchases. But, if they are growing more concerned about their personal finances, they probably will delay making that purchase. This influences future consumer spending data and can have a moderate impact on the financial markets. Good news would be a sizable decline from March's 84.9 reading. Analysts are expecting to see a reading of approximately 59.4.
March's Industrial Production data will close out this week’s calendar at 9:15 AM ET Friday. It tracks output at U.S. factories, mines and utilities, translating into a sign of manufacturing sector strength. Analysts are predicting a 0.4% rise in production. This data is considered to be only moderately important to rates though. Weaker manufacturing activity is favorable news for mortgage rates.
Also worth noting is that we are heading into corporate earnings season where publicly-traded companies post their quarterly earnings and forward projections. Next week will be busier than this coming week with a higher number of announcements and larger companies reporting, but this week will be the first active week of earnings. Generally speaking, bad news for stocks is good news for bonds and could lead to lower mortgage rates. Disappointing earnings should drive stocks lower, causing funds to shift into bonds and mortgage rates to move lower. But stronger earnings could lead to bond selling and higher mortgage rates.
Overall, Tuesday or Thursday are the best candidates as the most important day for rates. Both have major economic reports set for release that can heavily influence bond trading and mortgage pricing. The bond market will close early Thursday ahead of the Good Friday holiday while stocks will trade a full day. All markets will be closed Friday, reopening for regular trading Monday morning. There is a strong possibility of this being another active week for the financial and mortgage markets. Therefore, it would be prudent to keep a close eye on the markets if still floating an interest rate and closing in the near future.