This week has three pieces of economic data that are relevant to mortgage rates in addition to two Treasury auctions that can also be influential. None of the relevant data is scheduled until Thursday, so look for the stock markets to influence bond trading and mortgage rates the first couple of days.
The two relevant Treasury auctions will take place Wednesday and Thursday. 10-year Treasury Notes will be sold Wednesday while 30-year Bonds will be sold Thursday. Results of both auctions will be posted at 1:00 PM ET on the sale days. If investor demand was high for these securities, we may see bonds rally during afternoon trading. However, weak interest in these sales could lead to bond selling and an increase in mortgage rates. It is common to see some pressure in bonds right before these sales as investors prepare for them, but as long as the sales are not weak those pre-auction losses are usually recovered once they are completed.
The first economic data of the week comes Thursday when the Commerce Department posts May's Retail Sales data at 8:30 AM ET. This report gives us a very important measurement of consumer spending, which is highly relevant to the bond market because consumer spending makes up over two-thirds of the U.S. economy. Analysts are expecting to see that retail-level sales rose 0.7% last month. A small increase or better yet a decline in sales, signaling a slowing economy, would be negative for stocks, good news for the bond market and would likely lead to lower mortgage rates Thursday morning. On the other hand, a stronger level of sales will likely equate push stocks higher and lead to an increase in rates.
Friday has the remaining two pieces of economic data that we will be watching. The first of those is one of the two key measurements of inflation that we get each month. May's Producer Price Index (PPI) will be released early Friday morning, helping us measure inflationary pressures at the producer level of the economy. There are two readings of this index, the overall and the core data. The core data is considered to be the more important one because it excludes more volatile food and energy prices. A large increase could raise concerns about inflation rising as the Fed starts raising key short-term interest rates. This would not be good news for bond prices or mortgage rates since inflation erodes the value of a bond's future fixed interest payments. Rising inflation causes investors to sell bonds, driving bond prices lower, pushing their yields upward and bringing mortgage rates higher. Analysts are expecting to see increases of 0.2% in the overall index and 0.1% in the core reading, signaling inflation was subdued at the manufacturing level of the economy last month.
June's preliminary reading to the University of Michigan's Index of Consumer Sentiment will be posted late Friday morning. This index measures consumer willingness to spend and usually has a minor to moderate impact on the financial markets. It is expected to show a reading of 82.9, which would be an increase from May's 81.9. A smaller than expected reading would be considered good news for bonds because it would mean that surveyed consumers were less optimistic about their own financial and employment situations than thought. That often means they are less likely to make large purchases in the near future, but since this report is only moderately important it likely will not influence mortgage rates considerably unless it shows a significant variance from forecasts.
Overall, look for Thursday or Friday to be the biggest day of the week with both having important economic data scheduled. The least important day of the week will probably be Tuesday. We saw plenty of movement in the markets and mortgage pricing again last week and it is quite likely that this week will also be active. However, I suspect that it will be to a less degree than last week was. The stock markets will also influence bond trading and mortgage rates, so watch the major indexes in addition to the economic reports.